EonX Technologies Inc. (CSE:EONX) Might Not Be As Mispriced As It Looks

EonX Technologies Inc.'s (CSE:EONX) price-to-sales (or "P/S") ratio of 0.3x might make it look like a strong buy right now compared to the Diversified Financial industry in Canada, where around half of the companies have P/S ratios above 4.9x and even P/S above 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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See our latest analysis for EonX Technologies

How Has EonX Technologies Performed Recently?

EonX Technologies certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on EonX Technologies will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For EonX Technologies?

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

Taking a look back first, we see that the company grew revenue by an impressive 85% last year. The latest three year period has also seen an excellent 186% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 35% shows it's noticeably more attractive.

With this information, we find it odd that EonX Technologies is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

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.

We're very surprised to see EonX Technologies currently trading on a much 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 assume there are some significant underlying risks to the company's ability to make money which is applying downwards 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 perceive a likelihood of revenue fluctuations in the future.

Plus, you should also learn about these 4 warning signs we've spotted with EonX Technologies (including 3 which don't sit too well with us).

If you're unsure about the strength of EonX 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.