Guardforce AI Co., Limited (NASDAQ:GFAI) Investors Are Less Pessimistic Than Expected
There wouldn't be many who think Guardforce AI Co., Limited's (NASDAQ:GFAI) price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S for the Commercial Services industry in the United States is similar at about 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
See our latest analysis for Guardforce AI
What Does Guardforce AI's P/S Mean For Shareholders?
Guardforce AI could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Guardforce AI will help you uncover what's on the horizon.
Do Revenue Forecasts Match The P/S Ratio?
The only time you'd be comfortable seeing a P/S like Guardforce AI's is when the company's growth is tracking the industry closely.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.9%. The last three years don't look nice either as the company has shrunk revenue by 11% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Looking ahead now, revenue is anticipated to climb by 7.3% during the coming year according to the only analyst following the company. That's shaping up to be materially lower than the 69% growth forecast for the broader industry.
With this in mind, we find it intriguing that Guardforce AI's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
What Does Guardforce AI's P/S Mean For Investors?
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 look at the analysts forecasts of Guardforce AI's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.
And what about other risks? Every company has them, and we've spotted 5 warning signs for Guardforce AI (of which 4 are a bit unpleasant!) you should know about.
If you're unsure about the strength of Guardforce AI'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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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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