The Market Doesn't Like What It Sees From Niutech Group AB's (NGM:NIUTEC) Revenues Yet As Shares Tumble 28%

To the annoyance of some shareholders, Niutech Group AB (NGM:NIUTEC) shares are down a considerable 28% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 58% loss during that time.

Following the heavy fall in price, Niutech Group may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Electrical industry in Sweden have P/S ratios greater than 1.4x 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.

View our latest analysis for Niutech Group

What Does Niutech Group's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Niutech Group has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Niutech Group.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 108% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 2.5% during the coming year according to the one analyst following the company. With the industry predicted to deliver 22% growth, that's a disappointing outcome.

With this information, we are not surprised that Niutech Group is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does Niutech Group's P/S Mean For Investors?

Niutech Group's recently weak share price has pulled its P/S back below other Electrical companies. 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.

As we suspected, our examination of Niutech Group's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Niutech Group's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Having said that, be aware Niutech Group is showing 4 warning signs in our investment analysis, and 3 of those are a bit unpleasant.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.