To the annoyance of some shareholders, Yunhong Green CTI Ltd. (NASDAQ:YHGJ) shares are down a considerable 30% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 78% share price decline.

Although its price has dipped substantially, there still wouldn't be many who think Yunhong Green CTI's price-to-sales (or "P/S") ratio of 0.7x is worth a mention when it essentially matches the median P/S in the United States' Consumer Durables industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How Has Yunhong Green CTI Performed Recently?

The revenue growth achieved at Yunhong Green CTI over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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

How Is Yunhong Green CTI's Revenue Growth Trending?

In order to justify its P/S ratio, Yunhong Green CTI would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Still, lamentably revenue has fallen 6.1% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 5.2% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Yunhong Green CTI's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Final Word

Yunhong Green CTI's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at Yunhong Green CTI revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Yunhong Green CTI (1 is concerning) you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.