The China Automotive Interior Decoration Holdings Limited (HKG:48) share price has softened a substantial 30% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

After such a large drop in price, when close to half the companies operating in Hong Kong's Auto Components industry have price-to-sales ratios (or "P/S") above 0.8x, you may consider China Automotive Interior Decoration Holdings as an enticing stock to check out with its 0.2x P/S ratio. 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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Check out our latest analysis for China Automotive Interior Decoration Holdings

What Does China Automotive Interior Decoration Holdings' Recent Performance Look Like?

Revenue has risen firmly for China Automotive Interior Decoration Holdings recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on China Automotive Interior Decoration Holdings' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For China Automotive Interior Decoration Holdings?

There's an inherent assumption that a company should underperform the industry for P/S ratios like China Automotive Interior Decoration Holdings' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Still, lamentably revenue has fallen 29% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 21% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that China Automotive Interior Decoration Holdings' P/S would sit below the majority of other companies. However, 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 recent revenue trends are already weighing down the shares.

What We Can Learn From China Automotive Interior Decoration Holdings' P/S?

The southerly movements of China Automotive Interior Decoration Holdings' 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.

It's no surprise that China Automotive Interior Decoration Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - China Automotive Interior Decoration Holdings has 3 warning signs (and 2 which are significant) we think you should know about.

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