NN, Inc. (NASDAQ:NNBR) Stock's 32% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Unfortunately for some shareholders, the NN, Inc. (NASDAQ:NNBR) share price has dived 32% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 66% share price decline.

Since its price has dipped substantially, NN's price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Machinery industry in the United States, where around half of the companies have P/S ratios above 1.8x and even P/S above 4x 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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See our latest analysis for NN

What Does NN's Recent Performance Look Like?

NN 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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on NN will help you uncover what's on the horizon.

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

The only time you'd be truly comfortable seeing a P/S as low as NN's is when the company's growth is on track to lag 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 9.8%. As a result, revenue from three years ago have also fallen 14% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 3.7% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 5.6%, which is not materially different.

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

What Does NN's P/S Mean For Investors?

The southerly movements of NN's shares means its P/S is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of NN's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with NN, and understanding these should be part of your investment process.

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.