Lacklustre Performance Is Driving Electrovaya Inc.'s (TSE:EFL) Low P/S
You may think that with a price-to-sales (or "P/S") ratio of 4.9x Electrovaya Inc. (TSE:EFL) is a stock worth checking out, seeing as almost half of all the Electrical companies in Canada have P/S ratios greater than 8.3x and even P/S higher than 38x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
Check out our latest analysis for Electrovaya
What Does Electrovaya's P/S Mean For Shareholders?
Electrovaya certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. 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.
Keen to find out how analysts think Electrovaya's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Electrovaya's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as Electrovaya's is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 157%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 71% per annum as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 109% per year growth forecast for the broader industry.
With this information, we can see why Electrovaya 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 Bottom Line On Electrovaya's P/S
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of Electrovaya's analyst forecasts revealed that its inferior revenue outlook is contributing 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. It's hard to see the share price rising strongly in the near future under these circumstances.
Before you settle on your opinion, we've discovered 2 warning signs for Electrovaya (1 is potentially serious!) that 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).
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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