Improved Revenues Required Before AstroNova, Inc. (NASDAQ:ALOT) Shares Find Their Feet
You may think that with a price-to-sales (or "P/S") ratio of 0.4x AstroNova, Inc. (NASDAQ:ALOT) is a stock worth checking out, seeing as almost half of all the Tech companies in the United States have P/S ratios greater than 1.8x and even P/S higher than 7x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for AstroNova
How Has AstroNova Performed Recently?
As an illustration, revenue has deteriorated at AstroNova over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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 earnings, revenue and cash flow for the company? Then our free report on AstroNova will help you shine a light on its historical performance.How Is AstroNova's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as AstroNova's is when the company's growth is on track to lag the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.0%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 14% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 10% shows it's noticeably less attractive.
With this information, we can see why AstroNova is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
What Does AstroNova'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.
As we suspected, our examination of AstroNova revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.
It is also worth noting that we have found 3 warning signs for AstroNova (2 are significant!) that you need to take into consideration.
If you're unsure about the strength of AstroNova'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.