Greenland Technologies Holding Corporation (NASDAQ:GTEC) Looks Inexpensive After Falling 26% But Perhaps Not Attractive Enough

To the annoyance of some shareholders, Greenland Technologies Holding Corporation (NASDAQ:GTEC) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Longer-term shareholders would now have taken a real hit with the stock declining 4.1% in the last year.

Since its price has dipped substantially, Greenland Technologies Holding may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Machinery industry in the United States have P/S ratios greater than 1.9x and even P/S higher than 4x aren't out of the ordinary. 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 Greenland Technologies Holding

What Does Greenland Technologies Holding's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Greenland Technologies Holding over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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.

Although there are no analyst estimates available for Greenland Technologies Holding, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Greenland Technologies Holding's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 8.8% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 20% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 1.8% shows it's an unpleasant look.

In light of this, it's understandable that Greenland Technologies Holding's P/S would sit below the majority of other companies. 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.

What Does Greenland Technologies Holding's P/S Mean For Investors?

Greenland Technologies Holding's P/S has taken a dip along with its share price. 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.

As we suspected, our examination of Greenland Technologies Holding revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Greenland Technologies Holding (1 is concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on Greenland Technologies Holding, 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.