Lacklustre Performance Is Driving SuperCom Ltd.'s (NASDAQ:SPCB) 26% Price Drop
Unfortunately for some shareholders, the SuperCom Ltd. (NASDAQ:SPCB) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 78% loss during that time.
After such a large drop in price, SuperCom may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Electronic industry in the United States have P/S ratios greater than 1.6x and even P/S higher than 5x 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.
View our latest analysis for SuperCom
What Does SuperCom's Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, SuperCom has been doing relatively well. 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.
Want the full picture on analyst estimates for the company? Then our free report on SuperCom will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should underperform the industry for P/S ratios like SuperCom's to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 106% last year. Pleasingly, revenue has also lifted 114% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to slump, contracting by 8.7% during the coming year according to the sole analyst following the company. With the industry predicted to deliver 13% growth, that's a disappointing outcome.
With this in consideration, we find it intriguing that SuperCom's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What Does SuperCom's P/S Mean For Investors?
SuperCom's P/S has taken a dip along with its share price. 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.
It's clear to see that SuperCom maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
You need to take note of risks, for example - SuperCom has 4 warning signs (and 3 which are significant) we think you should know about.
If you're unsure about the strength of SuperCom'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.
