The Client Service International, Inc. (SZSE:300663) share price has fared very poorly over the last month, falling by a substantial 46%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 48% in that time.

Although its price has dipped substantially, Client Service International may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.2x, considering 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 aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Client Service International's Recent Performance Look Like?

For example, consider that Client Service International's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Client Service International will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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

Client Service International's 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 8.8% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 13% overall rise in revenue. 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.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 34% shows it's noticeably less attractive.

With this information, we can see why Client Service International is trading at a P/S lower than the industry. 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.

The Key Takeaway

Client Service International's 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.

In line with expectations, Client Service International 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.

Before you settle on your opinion, we've discovered 4 warning signs for Client Service International (3 are potentially serious!) that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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