The Gorilla Technology Group Inc. (NASDAQ:GRRR) share price has softened a substantial 32% over the previous 30 days, handing back much of the gains the stock has made lately. For any long-term shareholders, the last month ends a year to forget by locking in a 71% share price decline.

After such a large drop in price, Gorilla Technology Group's price-to-sales (or "P/S") ratio of 0.7x might make it look like a strong buy right now compared to the wider Software industry in the United States, where around half of the companies have P/S ratios above 4.3x and even P/S above 11x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

How Gorilla Technology Group Has Been Performing

Gorilla Technology Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Gorilla Technology Group's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an exceptional 189% gain to the company's top line. The latest three year period has also seen an excellent 42% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 22% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 15% growth forecast for the broader industry.

With this information, we find it odd that Gorilla Technology Group is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Shares in Gorilla Technology Group have plummeted and its P/S has followed suit. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

A look at Gorilla Technology Group's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

You should always think about risks. Case in point, we've spotted 4 warning signs for Gorilla Technology Group you should be aware of, and 2 of them are a bit unpleasant.

If these risks are making you reconsider your opinion on Gorilla Technology Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.