The Market Doesn't Like What It Sees From Eguana Technologies Inc.'s (CVE:EGT) Revenues Yet As Shares Tumble 50%

Unfortunately for some shareholders, the Eguana Technologies Inc. (CVE:EGT) share price has dived 50% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 95% share price decline.

Following the heavy fall in price, Eguana Technologies may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Electrical industry in Canada have P/S ratios greater than 2.3x and even P/S higher than 44x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Eguana Technologies

What Does Eguana Technologies' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Eguana Technologies has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Eguana Technologies.

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

Eguana Technologies' 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.

If we review the last year of revenue growth, the company posted a terrific increase of 190%. Pleasingly, revenue has also lifted 136% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 13% as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 268%, which is noticeably more attractive.

With this in consideration, its clear as to why Eguana Technologies' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Having almost fallen off a cliff, Eguana Technologies' share price has pulled its P/S way down as well. 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 we suspected, our examination of Eguana Technologies' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Eguana Technologies (4 make us uncomfortable!) that you should be aware of before investing here.

If you're unsure about the strength of Eguana Technologies' 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.