Investors Don't See Light At End Of The Caldwell Partners International Inc.'s (TSE:CWL) Tunnel And Push Stock Down 27%

The Caldwell Partners International Inc. (TSE:CWL) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 23%.

Even after such a large drop in price, Caldwell Partners International's price-to-sales (or "P/S") ratio of 0.3x might still make it look like a buy right now compared to the Professional Services industry in Canada, where around half of the companies have P/S ratios above 1.9x and even P/S above 9x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Caldwell Partners International

How Caldwell Partners International Has Been Performing

It looks like revenue growth has deserted Caldwell Partners International recently, which is not something to boast about. One possibility is that the P/S is low because investors think this benign revenue growth rate will likely underperform the broader industry in the near future. Those who are bullish on Caldwell Partners International will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Caldwell Partners International, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Caldwell Partners International?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 35% overall from three years ago. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 6.6% shows it's an unpleasant look.

With this information, we are not surprised that Caldwell Partners International is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Caldwell Partners International's P/S has taken a dip along with its share price. 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.

It's no surprise that Caldwell Partners International maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You need to take note of risks, for example - Caldwell Partners International has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If these risks are making you reconsider your opinion on Caldwell Partners International, 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.