Epoxy Base Electronic Material Corporation Limited (SHSE:603002) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 16% in that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Epoxy Base Electronic Material's P/S ratio of 2.2x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in China is also close to 2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Epoxy Base Electronic Material's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Epoxy Base Electronic Material's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

In order to justify its P/S ratio, Epoxy Base Electronic Material 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 34%. As a result, revenue from three years ago have also fallen 17% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 18% over the next year. That's shaping up to be materially lower than the 21% growth forecast for the broader industry.

With this information, we find it interesting that Epoxy Base Electronic Material is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Epoxy Base Electronic Material's P/S Mean For Investors?

Epoxy Base Electronic Material's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

When you consider that Epoxy Base Electronic Material's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Plus, you should also learn about these 4 warning signs we've spotted with Epoxy Base Electronic Material (including 1 which is concerning).

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

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