Methode Electronics, Inc. (NYSE:MEI) shareholders that were waiting for something to happen have been dealt a blow with a 39% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 70% share price decline.

Following the heavy fall in price, Methode Electronics may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.4x, considering almost half of all companies in the Electronic industry in the United States have P/S ratios greater than 1.8x 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.

How Methode Electronics Has Been Performing

There hasn't been much to differentiate Methode Electronics' and the industry's retreating revenue lately. One possibility is that the P/S ratio is low because investors think the company's revenue may begin to slide even faster. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. At the very least, you'd be hoping that revenue doesn't fall off a cliff if your plan is to pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Methode Electronics?

Methode Electronics' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 2.5% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 14% in total. 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.

Shifting to the future, estimates from the three analysts covering the company suggest revenue growth is heading into negative territory, declining 6.8% over the next year. With the industry predicted to deliver 2.8% growth, that's a disappointing outcome.

With this in consideration, we find it intriguing that Methode Electronics' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Methode Electronics' P/S

Methode Electronics' P/S has taken a dip along with its share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It's clear to see that Methode Electronics maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Methode Electronics' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Plus, you should also learn about this 1 warning sign we've spotted with Methode Electronics.

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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