Investors Don't See Light At End Of Exro Technologies Inc.'s (TSE:EXRO) Tunnel And Push Stock Down 33%

To the annoyance of some shareholders, Exro Technologies Inc. (TSE:EXRO) shares are down a considerable 33% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 88% share price decline.

Since its price has dipped substantially, Exro Technologies' price-to-sales (or "P/S") ratio of 1.1x might make it look like a strong buy right now compared to the wider Electrical industry in Canada, where around half of the companies have P/S ratios above 8.5x and even P/S above 42x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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Check out our latest analysis for Exro Technologies

How Exro Technologies Has Been Performing

With revenue growth that's inferior to most other companies of late, Exro Technologies has been relatively sluggish. 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.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an explosive gain to the company's top line. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 50% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 82%, which is noticeably more attractive.

With this information, we can see why Exro 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.

The Bottom Line On Exro Technologies' P/S

Having almost fallen off a cliff, Exro Technologies' share price has pulled its P/S way down as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Exro Technologies' analyst forecasts revealed that its inferior revenue outlook is contributing 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.

There are also other vital risk factors to consider and we've discovered 6 warning signs for Exro Technologies (4 are a bit unpleasant!) that you should be aware of before investing here.

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