Unfortunately for some shareholders, the Yorhe Fluid Intelligent Control Co., Ltd. (SZSE:002795) share price has dived 52% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

Following the heavy fall in price, when close to half the companies operating in China's Machinery industry have price-to-sales ratios (or "P/S") above 2.3x, you may consider Yorhe Fluid Intelligent Control as an enticing stock to check out with its 1.7x P/S ratio. 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 Yorhe Fluid Intelligent Control Has Been Performing

As an illustration, revenue has deteriorated at Yorhe Fluid Intelligent Control over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Yorhe Fluid Intelligent Control will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Yorhe Fluid Intelligent Control's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 14% decrease to the company's top line. Even so, admirably revenue has lifted 55% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that to the industry, which is predicted to deliver 27% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Yorhe Fluid Intelligent Control's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Yorhe Fluid Intelligent Control's P/S

Yorhe Fluid Intelligent Control's P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Yorhe Fluid Intelligent Control revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

It is also worth noting that we have found 2 warning signs for Yorhe Fluid Intelligent Control (1 can't be ignored!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Yorhe Fluid Intelligent Control, 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.