To the annoyance of some shareholders, ArcherMind Technology (Nanjing) Co., Ltd. (SZSE:300598) shares are down a considerable 30% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 51% loss during that time.

Since its price has dipped substantially, ArcherMind Technology (Nanjing) may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.7x, since almost half of all companies in the Software industry in China have P/S ratios greater than 4.3x and even P/S higher than 8x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has ArcherMind Technology (Nanjing) Performed Recently?

For instance, ArcherMind Technology (Nanjing)'s receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

How Is ArcherMind Technology (Nanjing)'s Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 3.6% decrease to the company's top line. Even so, admirably revenue has lifted 128% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 34% shows it's about the same on an annualised basis.

With this in consideration, we find it intriguing that ArcherMind Technology (Nanjing)'s P/S falls short of its industry peers. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What We Can Learn From ArcherMind Technology (Nanjing)'s P/S?

The southerly movements of ArcherMind Technology (Nanjing)'s shares means its P/S is now sitting at a pretty low level. 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.

Our examination of ArcherMind Technology (Nanjing) revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with ArcherMind Technology (Nanjing) (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on ArcherMind Technology (Nanjing), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.