It's Down 29% But iFabric Corp. (TSE:IFA) Could Be Riskier Than It Looks

iFabric Corp. (TSE:IFA) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. The last month has meant the stock is now only up 4.8% during the last year.

In spite of the heavy fall in price, it's still not a stretch to say that iFabric's price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" compared to the Luxury industry in Canada, where the median P/S ratio is around 1.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for iFabric

How iFabric Has Been Performing

The revenue growth achieved at iFabric over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on iFabric will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on iFabric's earnings, revenue and cash flow.

How Is iFabric's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 9.6%. The latest three year period has also seen an excellent 88% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

This is in contrast to the rest of the industry, which is expected to grow by 6.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that iFabric is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does iFabric's P/S Mean For Investors?

Following iFabric's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

We've established that iFabric currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

You should always think about risks. Case in point, we've spotted 1 warning sign for iFabric you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.