Why Investors Shouldn't Be Surprised By Niutech Group AB's (NGM:NIUTEC) 26% Share Price Plunge

To the annoyance of some shareholders, Niutech Group AB (NGM:NIUTEC) shares are down a considerable 26% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 96% share price decline.

Following the heavy fall in price, Niutech Group's price-to-sales (or "P/S") ratio of 0.1x might make it look like a buy right now compared to the Electrical industry in Sweden, where around half of the companies have P/S ratios above 1.9x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Niutech Group

How Has Niutech Group Performed Recently?

Niutech Group has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. You'd much rather the company improve its revenue performance if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Niutech Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Niutech Group?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 34%. Still, the latest three year period has seen an excellent 165% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to slump, contracting by 43% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 13% growth, that's a disappointing outcome.

With this in consideration, we find it intriguing that Niutech Group's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

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

Niutech Group's P/S has taken a dip along with its share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Niutech Group's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Niutech Group's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Niutech Group is showing 4 warning signs in our investment analysis, and 3 of those can't be ignored.

If you're unsure about the strength of Niutech 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.