Investors Give Gratifii Limited (ASX:GTI) Shares A 38% Hiding

Unfortunately for some shareholders, the Gratifii Limited (ASX:GTI) share price has dived 38% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 50% loss during that time.

After such a large drop in price, Gratifii's price-to-sales (or "P/S") ratio of 0.3x 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 2.6x and even P/S above 7x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Gratifii

How Gratifii Has Been Performing

Recent times have been advantageous for Gratifii as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

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

Gratifii's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 53% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 30% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 22%, which is noticeably less attractive.

In light of this, it's peculiar that Gratifii's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Gratifii's P/S

Having almost fallen off a cliff, Gratifii's share price has pulled its P/S way down as well. 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.

To us, it seems Gratifii currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Gratifii you should be aware of, and 2 of them are a bit concerning.

If these risks are making you reconsider your opinion on Gratifii, 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.