Primeton Information Technologies, Inc. (SHSE:688118) shareholders that were waiting for something to happen have been dealt a blow with a 33% share price drop in the last month. Longer-term shareholders would now have taken a real hit with the stock declining 3.9% in the last year.

After such a large drop in price, Primeton Information Technologies' price-to-sales (or "P/S") ratio of 3.9x might make it look like a buy right now compared to the Software industry in China, where around half of the companies have P/S ratios above 5x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Primeton Information Technologies

How Primeton Information Technologies Has Been Performing

We'd have to say that with no tangible growth over the last year, Primeton Information Technologies' revenue has been unimpressive. Perhaps the market believes the recent lacklustre revenue performance is a sign of future underperformance relative to industry peers, hurting the P/S. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

How Is Primeton Information Technologies' Revenue Growth Trending?

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Regardless, revenue has managed to lift by a handy 22% in aggregate from three years ago, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 35% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Primeton Information Technologies' P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does Primeton Information Technologies' P/S Mean For Investors?

Primeton Information Technologies' recently weak share price has pulled its P/S back below other Software companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

In line with expectations, Primeton Information Technologies maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Primeton Information Technologies that you need to take into consideration.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.