Calix Limited's (ASX:CXL) Popularity With Investors Under Threat As Stock Sinks 28%

To the annoyance of some shareholders, Calix Limited (ASX:CXL) shares are down a considerable 28% 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 67% share price decline.

Even after such a large drop in price, it's still not a stretch to say that Calix's price-to-sales (or "P/S") ratio of 4.6x right now seems quite "middle-of-the-road" compared to the Chemicals industry in Australia, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Calix

What Does Calix's P/S Mean For Shareholders?

Calix 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 moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Calix.

Is There Some Revenue Growth Forecasted For Calix?

The only time you'd be comfortable seeing a P/S like Calix's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. Revenue has also lifted 26% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 42% per annum over the next three years. With the industry predicted to deliver 454% growth per annum, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Calix is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

With its share price dropping off a cliff, the P/S for Calix looks to be in line with the rest of the Chemicals industry. 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.

When you consider that Calix's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

You always need to take note of risks, for example - Calix has 3 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Calix, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.