Slammed 25% AION-TECH Solutions Limited (NSE:GOLDTECH) Screens Well Here But There Might Be A Catch

Unfortunately for some shareholders, the AION-TECH Solutions Limited (NSE:GOLDTECH) share price has dived 25% in the last thirty days, prolonging recent pain. The recent drop has obliterated the annual return, with the share price now down 4.1% over that longer period.

After such a large drop in price, AION-TECH Solutions may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.4x, since almost half of all companies in the IT industry in India have P/S ratios greater than 4.4x and even P/S higher than 10x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for AION-TECH Solutions

How Has AION-TECH Solutions Performed Recently?

As an illustration, revenue has deteriorated at AION-TECH Solutions over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on AION-TECH Solutions' earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as AION-TECH Solutions' is when the company's growth is on track to lag the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 6.3%. Even so, admirably revenue has lifted 73% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 7.4%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that AION-TECH Solutions' P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On AION-TECH Solutions' P/S

The southerly movements of AION-TECH Solutions' 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 AION-TECH Solutions revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

And what about other risks? Every company has them, and we've spotted 3 warning signs for AION-TECH Solutions (of which 1 is significant!) you should know about.

If these risks are making you reconsider your opinion on AION-TECH Solutions, 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.