Investors Don't See Light At End Of Aurora Mobile Limited's (NASDAQ:JG) Tunnel And Push Stock Down 31%
To the annoyance of some shareholders, Aurora Mobile Limited (NASDAQ:JG) shares are down a considerable 31% 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 60% share price decline.
Following the heavy fall in price, Aurora Mobile may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.4x and even P/S higher than 10x 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.
View our latest analysis for Aurora Mobile
What Does Aurora Mobile's P/S Mean For Shareholders?
While the industry has experienced revenue growth lately, Aurora Mobile's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Aurora Mobile.
How Is Aurora Mobile's Revenue Growth Trending?
In order to justify its P/S ratio, Aurora Mobile would need to produce anemic growth that's substantially trailing the industry.
Retrospectively, the last year delivered a frustrating 8.0% 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 64% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 4.9% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 13%, which is noticeably more attractive.
With this information, we can see why Aurora Mobile is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
Shares in Aurora Mobile have plummeted and its P/S has followed suit. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
As expected, our analysis of Aurora Mobile's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
We don't want to rain on the parade too much, but we did also find 1 warning sign for Aurora Mobile that you need to be mindful of.
If you're unsure about the strength of Aurora Mobile's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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.
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