Benign Growth For Senetas Corporation Limited (ASX:SEN) Underpins Stock's 26% Plummet

Senetas Corporation Limited (ASX:SEN) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 46% share price drop.

After such a large drop in price, Senetas' price-to-sales (or "P/S") ratio of 0.8x might make it look like a buy right now compared to the Communications industry in Australia, where around half of the companies have P/S ratios above 1.7x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Senetas

What Does Senetas' Recent Performance Look Like?

Senetas could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Senetas' Revenue Growth Trending?

In order to justify its P/S ratio, Senetas would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. The latest three year period has also seen a 6.3% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 13% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Senetas 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 We Can Learn From Senetas' P/S?

Senetas' recently weak share price has pulled its P/S back below other Communications companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of Senetas' 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. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Senetas (of which 2 don't sit too well with us!) you should know about.

If you're unsure about the strength of Senetas' 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.