To the annoyance of some shareholders, Lumos Diagnostics Holdings Limited (ASX:LDX) shares are down a considerable 29% 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 68% share price decline.

After such a large drop in price, Lumos Diagnostics Holdings may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.7x, since almost half of all companies in the Medical Equipment industry in Australia have P/S ratios greater than 3.8x and even P/S higher than 9x are not unusual. 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 Lumos Diagnostics Holdings

How Lumos Diagnostics Holdings Has Been Performing

With revenue growth that's exceedingly strong of late, Lumos Diagnostics Holdings 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. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Lumos Diagnostics Holdings will help you shine a light on its historical performance.

How Is Lumos Diagnostics Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 79% gain to the company's top line. Still, revenue has fallen 6.2% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 18% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Lumos Diagnostics Holdings' P/S is lower than most of its industry peers. 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 Lumos Diagnostics Holdings' P/S?

Lumos Diagnostics Holdings' P/S looks about as weak as its stock price lately. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Lumos Diagnostics Holdings confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Lumos Diagnostics Holdings is showing 3 warning signs in our investment analysis, and 1 of those is potentially serious.

If these risks are making you reconsider your opinion on Lumos Diagnostics Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.