Investors Continue Waiting On Sidelines For NFI Group Inc. (TSE:NFI)

NFI Group Inc.'s (TSE:NFI) price-to-sales (or "P/S") ratio of 0.5x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Machinery industry in Canada have P/S ratios greater than 1.3x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for NFI Group

What Does NFI Group's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, NFI Group has been doing relatively well. 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.

Keen to find out how analysts think NFI Group's 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?

There's an inherent assumption that a company should underperform the industry for P/S ratios like NFI Group's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 29% last year. As a result, it also grew revenue by 21% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 22% during the coming year according to the five analysts following the company. With the industry only predicted to deliver 7.4%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that NFI Group'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 Key Takeaway

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.

To us, it seems NFI Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for NFI Group that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.