Unfortunately for some shareholders, the Earth-Panda Advanced Magnetic Material Co.,Ltd. (SHSE:688077) share price has dived 25% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 56% share price decline.

Since its price has dipped substantially, Earth-Panda Advanced Magnetic MaterialLtd may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.7x and even P/S higher than 5x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Earth-Panda Advanced Magnetic MaterialLtd

What Does Earth-Panda Advanced Magnetic MaterialLtd's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Earth-Panda Advanced Magnetic MaterialLtd's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Earth-Panda Advanced Magnetic MaterialLtd?

The only time you'd be truly comfortable seeing a P/S as low as Earth-Panda Advanced Magnetic MaterialLtd's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 131% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 36% as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 28% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Earth-Panda Advanced Magnetic MaterialLtd's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Earth-Panda Advanced Magnetic MaterialLtd's recently weak share price has pulled its P/S back below other Machinery companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To us, it seems Earth-Panda Advanced Magnetic MaterialLtd currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Earth-Panda Advanced Magnetic MaterialLtd you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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