Taiga Motors Corporation's (TSE:TAIG) Popularity With Investors Under Threat As Stock Sinks 33%

Unfortunately for some shareholders, the Taiga Motors Corporation (TSE:TAIG) share price has dived 33% 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 73% share price decline.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Taiga Motors' P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Leisure industry in Canada is also close to 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Taiga Motors

What Does Taiga Motors' P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Taiga Motors has been doing quite well of late. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Taiga Motors will help you uncover what's on the horizon.

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

Taiga Motors' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. In spite of this unbelievable short-term growth, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should bring plunging returns, with revenue decreasing 23% as estimated by the one analyst watching the company. The industry is also set to see revenue decline 1.0% but the stock is shaping up to perform materially worse.

In light of this, it's somewhat peculiar that Taiga Motors' P/S sits in line with the majority of other companies. When revenue shrink rapidly the P/S often shrinks too, which could set up shareholders for future disappointment. Maintaining these prices will be difficult to achieve as the weak outlook is likely to weigh down the shares eventually.

The Bottom Line On Taiga Motors' P/S

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

Taiga Motors currently trades on a higher P/S than expected based on revenue decline, even more so since its revenue forecast is even worse than the struggling industry. It's not unusual in cases where revenue growth is poor, that the share price declines, sending the moderate P/S lower relative to the industry. We're also cautious about the company's ability to resist even greater pain to its business from the broader industry turmoil. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Taiga Motors that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.