Market Cool On NN, Inc.'s (NASDAQ:NNBR) Revenues Pushing Shares 25% Lower

NN, Inc. (NASDAQ:NNBR) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 27% share price drop.

Following the heavy fall in price, NN 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 1.5x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for NN

How Has NN Performed Recently?

While the industry has experienced revenue growth lately, NN's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

NN's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than 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 4.9%. As a result, revenue from three years ago have also fallen 3.3% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 0.3% as estimated by the three analysts watching the company. Meanwhile, the industry is forecast to moderate by 0.1%, which suggests the company won't escape the wider industry forces.

In light of this, the fact NN's P/S sits below the majority of other companies is unanticipated but certainly not shocking. We think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as the weak outlook is already weighing down the shares heavily.

The Bottom Line On NN's P/S

The southerly movements of NN's shares means its P/S is now sitting at a pretty low level. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of NN's analyst forecasts revealed despite having an equally shaky outlook against the industry, its P/S much lower than we would have predicted. Even though the company's revenue outlook is on par, we assume potential risks are what might be placing downward pressure on the P/S ratio. The market could be pricing in revenue growth falling below that of the industry, a possibility given tough industry conditions. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for NN that you should be aware of.

If you're unsure about the strength of NN'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.