The NN, Inc. (NASDAQ:NNBR) share price has fared very poorly over the last month, falling by a substantial 27%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 29% share price drop.

After such a large drop in price, NN may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Machinery industry in the United States have P/S ratios greater than 1.6x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How NN Has Been Performing

NN hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like NN's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.9%. The last three years don't look nice either as the company has shrunk revenue by 3.3% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company are not great, suggesting revenue should decline by 0.3% over the next year. Although, this is simply shaping up to be in line with the broader industry, which is also set to decline 0.1%.

With this in consideration, we find it intriguing but understandable that NN's P/S falls short of its industry peers. With revenue going in reverse, it's not guaranteed that the P/S has found a floor yet. Even just maintaining these prices could be difficult to achieve as the weak outlook is already weighing down the shares heavily.

The Bottom Line On NN's P/S

The southerly movements of NN's shares means its P/S is now sitting at a pretty low level. 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 NN's analyst forecasts revealed despite having an equally shaky outlook against the industry, its P/S much lower than we would have predicted. Even though the company's revenue outlook is on par, we assume potential risks are what might be placing downward pressure on the P/S ratio. The market could be pricing in revenue growth falling below that of the industry, a possibility given tough industry conditions. At least the low P/S ratio helps mitigate the risk of the share price dropping substantially, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 2 warning signs for NN that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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