Unfortunately for some shareholders, the NSFOCUS Technologies Group Co., Ltd. (SZSE:300369) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 64% loss during that time.

Since its price has dipped substantially, NSFOCUS Technologies Group's price-to-sales (or "P/S") ratio of 1.8x might make it look like a strong buy right now compared to the wider Software industry in China, where around half of the companies have P/S ratios above 4.5x and even P/S above 8x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does NSFOCUS Technologies Group's Recent Performance Look Like?

While the industry has experienced revenue growth lately, NSFOCUS Technologies Group's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as NSFOCUS Technologies Group's is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 21%. Still, the latest three year period has seen an excellent 40% overall rise in revenue, in spite of its unsatisfying short-term performance. 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.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 25% over the next year. That's shaping up to be materially lower than the 28% growth forecast for the broader industry.

In light of this, it's understandable that NSFOCUS Technologies Group's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From NSFOCUS Technologies Group's P/S?

NSFOCUS Technologies Group's P/S looks about as weak as its stock price lately. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that NSFOCUS Technologies Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 1 warning sign for NSFOCUS Technologies Group you should be aware of.

If you're unsure about the strength of NSFOCUS Technologies Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.