Yahoo Finance Risks Still Elevated At These Prices As Carbon Revolution Public Limited Company (NASDAQ:CREV) Shares Dive 55%
To the annoyance of some shareholders, Carbon Revolution Public Limited Company (NASDAQ:CREV) shares are down a considerable 55% 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 69% share price decline.
Even after such a large drop in price, given close to half the companies operating in the United States' Auto Components industry have price-to-sales ratios (or "P/S") below 0.7x, you may still consider Carbon Revolution as a stock to potentially avoid with its 2.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
See our latest analysis for Carbon Revolution
How Carbon Revolution Has Been Performing
As an illustration, revenue has deteriorated at Carbon Revolution over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.
Although there are no analyst estimates available for Carbon Revolution, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, Carbon Revolution would need to produce impressive growth in excess of the industry.
Retrospectively, the last year delivered a frustrating 5.1% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 1.8% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
With this information, we find it concerning that Carbon Revolution is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
What We Can Learn From Carbon Revolution's P/S?
Carbon Revolution's P/S remain high even after its stock plunged. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of Carbon Revolution revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
You should always think about risks. Case in point, we've spotted 2 warning signs for Carbon Revolution you should be aware of, and 1 of them doesn't sit too well with us.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.
