There's Reason For Concern Over Calix Limited's (ASX:CXL) Massive 32% Price Jump

Calix Limited (ASX:CXL) shares have had a really impressive month, gaining 32% after a shaky period beforehand. But the last month did very little to improve the 53% share price decline over the last year.

After such a large jump in price, when almost half of the companies in Australia's Chemicals industry have price-to-sales ratios (or "P/S") below 2.3x, you may consider Calix as a stock probably not worth researching with its 4.1x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Check out our latest analysis for Calix

How Calix Has Been Performing

With revenue growth that's inferior to most other companies of late, Calix has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Calix will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Calix?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Calix's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 53% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 44% each year during the coming three years according to the two analysts following the company. With the industry predicted to deliver 270% growth per year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Calix is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Calix's P/S?

Calix's P/S is on the rise since its shares have risen strongly. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Calix, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you settle on your opinion, we've discovered 4 warning signs for Calix (1 is significant!) 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.