Structural Monitoring Systems Plc (ASX:SMN) Shares Slammed 30% But Getting In Cheap Might Be Difficult Regardless

Unfortunately for some shareholders, the Structural Monitoring Systems Plc (ASX:SMN) share price has dived 30% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 21% in that time.

Although its price has dipped substantially, it's still not a stretch to say that Structural Monitoring Systems' price-to-sales (or "P/S") ratio of 1.7x right now seems quite "middle-of-the-road" compared to the Electronic industry in Australia, where the median P/S ratio is around 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for Structural Monitoring Systems

How Structural Monitoring Systems Has Been Performing

Recent revenue growth for Structural Monitoring Systems has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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How Is Structural Monitoring Systems' Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 6.8% gain to the company's revenues. Pleasingly, revenue has also lifted 101% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 16% per annum during the coming three years according to the only analyst following the company. That's shaping up to be similar to the 15% per annum growth forecast for the broader industry.

With this in mind, it makes sense that Structural Monitoring Systems' P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Structural Monitoring Systems' plummeting stock price has brought its P/S back to a similar region as the rest of the 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.

We've seen that Structural Monitoring Systems maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

Before you take the next step, you should know about the 1 warning sign for Structural Monitoring Systems that we have uncovered.

If these risks are making you reconsider your opinion on Structural Monitoring Systems, 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.