OMH SCIENCE Group Co., Ltd (SZSE:300486) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 44% in that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about OMH SCIENCE Group's P/S ratio of 2.2x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in China is also close to 2.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for OMH SCIENCE Group

What Does OMH SCIENCE Group's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at OMH SCIENCE Group over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, OMH SCIENCE Group would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 25%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 21% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 28% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that OMH SCIENCE Group's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On OMH SCIENCE Group's P/S

With its share price dropping off a cliff, the P/S for OMH SCIENCE Group looks to be in line with the rest of the Machinery industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of OMH SCIENCE Group revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

It is also worth noting that we have found 1 warning sign for OMH SCIENCE Group that you need to take into consideration.

If you're unsure about the strength of OMH SCIENCE Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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