To the annoyance of some shareholders, Microvast Holdings, Inc. (NASDAQ:MVST) shares are down a considerable 40% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 56% loss during that time.

Since its price has dipped substantially, Microvast Holdings may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.7x, 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. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Microvast Holdings Performed Recently?

Recent times have been advantageous for Microvast Holdings as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Microvast Holdings?

The only time you'd be truly comfortable seeing a P/S as low as Microvast Holdings' is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 29%. The strong recent performance means it was also able to grow revenue by 196% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 69% each year over the next three years. That's shaping up to be materially higher than the 6.1% each year growth forecast for the broader industry.

With this information, we find it odd that Microvast Holdings is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Microvast Holdings' P/S?

Microvast Holdings' 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.

To us, it seems Microvast Holdings currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for Microvast Holdings that we have uncovered.

If you're unsure about the strength of Microvast Holdings' 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.