Rubicon Water Limited (ASX:RWL) shares have had a horrible month, losing 34% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 55% share price decline.

After such a large drop in price, Rubicon Water's price-to-sales (or "P/S") ratio of 0.9x might make it look like a buy right now compared to the Electronic industry in Australia, where around half of the companies have P/S ratios above 1.5x and even P/S above 9x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Rubicon Water

What Does Rubicon Water's Recent Performance Look Like?

Rubicon Water 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 Rubicon Water will help you uncover what's on the horizon.

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

In order to justify its P/S ratio, Rubicon Water would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 6.9% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 22% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 29% during the coming year according to the only analyst following the company. With the industry predicted to deliver 29% growth , the company is positioned for a comparable revenue result.

With this information, we find it odd that Rubicon Water is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What Does Rubicon Water's P/S Mean For Investors?

The southerly movements of Rubicon Water'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 Rubicon Water's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. 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 3 warning signs with Rubicon Water (at least 1 which is potentially serious), and understanding these should be part of your investment process.

If you're unsure about the strength of Rubicon Water'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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