Cautious Investors Not Rewarding LiqTech International, Inc.'s (NASDAQ:LIQT) Performance Completely
It's not a stretch to say that LiqTech International, Inc.'s (NASDAQ:LIQT) price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" for companies in the Machinery industry in the United States, where the median P/S ratio is around 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Check out our latest analysis for LiqTech International
How LiqTech International Has Been Performing
LiqTech International could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on LiqTech International will help you uncover what's on the horizon.
Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, LiqTech International would need to produce growth that's similar to the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.7%. This means it has also seen a slide in revenue over the longer-term as revenue is down 54% 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.
Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 45% over the next year. With the industry only predicted to deliver 10%, the company is positioned for a stronger revenue result.
In light of this, it's curious that LiqTech International's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.
The Bottom Line On LiqTech International's P/S
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.
Despite enticing revenue growth figures that outpace the industry, LiqTech International's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
You should always think about risks. Case in point, we've spotted 2 warning signs for LiqTech International you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
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