Adacel Technologies Limited (ASX:ADA) Not Doing Enough For Some Investors As Its Shares Slump 38%

Adacel Technologies Limited (ASX:ADA) shareholders that were waiting for something to happen have been dealt a blow with a 38% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 58% loss during that time.

Following the heavy fall in price, Adacel Technologies' price-to-sales (or "P/S") ratio of 0.5x might make it look like a strong buy right now compared to the wider Software industry in Australia, where around half of the companies have P/S ratios above 2.7x and even P/S above 8x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Adacel Technologies

How Adacel Technologies Has Been Performing

Recent times haven't been great for Adacel Technologies as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Adacel Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Adacel Technologies would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 20% per annum, which is noticeably more attractive.

With this information, we can see why Adacel Technologies is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Adacel Technologies' P/S Mean For Investors?

Adacel Technologies' P/S looks about as weak as its stock price lately. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As expected, our analysis of Adacel Technologies' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Adacel Technologies is showing 4 warning signs in our investment analysis, and 2 of those make us uncomfortable.

If you're unsure about the strength of Adacel Technologies' 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.