Konka Group Co., Ltd. (SZSE:000016) shares have retraced a considerable 32% in the last month, reversing a fair amount of their solid recent performance. Looking at the bigger picture, even after this poor month the stock is up 26% in the last year.

Following the heavy fall in price, Konka Group may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.1x, since almost half of all companies in the Consumer Durables industry in China have P/S ratios greater than 2.1x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Konka Group's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Konka Group 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. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Konka Group?

In order to justify its P/S ratio, Konka Group would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 44% decrease to the company's top line. As a result, revenue from three years ago have also fallen 79% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 10% shows it's an unpleasant look.

With this in mind, we understand why Konka Group's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Konka Group'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.

It's no surprise that Konka Group maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Konka Group that we have uncovered.

If these risks are making you reconsider your opinion on Konka Group, 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.