Lucapa Diamond Company Limited (ASX:LOM) shareholders won't be pleased to see that the share price has had a very rough month, dropping 41% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 85% share price decline.

Following the heavy fall in price, Lucapa Diamond may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 62.4x and even P/S higher than 294x 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 so limited.

See our latest analysis for Lucapa Diamond

What Does Lucapa Diamond's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Lucapa Diamond has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Lucapa Diamond will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

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

Lucapa Diamond's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 168% gain to the company's top line. Pleasingly, revenue has also lifted 62% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 288% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Lucapa Diamond is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

Having almost fallen off a cliff, Lucapa Diamond's share price has pulled its P/S way down as well. 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.

As we suspected, our examination of Lucapa Diamond revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for Lucapa Diamond (2 are significant!) that you need to take into consideration.

If you're unsure about the strength of Lucapa Diamond'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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