Niu Technologies (NASDAQ:NIU) Screens Well But There Might Be A Catch

Niu Technologies' (NASDAQ:NIU) price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Auto industry in the United States, where around half of the companies have P/S ratios above 1.4x and even P/S above 13x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Niu Technologies

How Niu Technologies Has Been Performing

Niu Technologies hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Niu Technologies?

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

Retrospectively, the last year delivered a frustrating 5.3% decrease to the company's top line. As a result, revenue from three years ago have also fallen 6.8% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 44% over the next year. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Niu Technologies' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Niu Technologies' P/S Mean For Investors?

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.

A look at Niu Technologies' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Niu Technologies with six simple checks on some of these key factors.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.