CEMATRIX Corporation (TSE:CEMX) Not Doing Enough For Some Investors As Its Shares Slump 28%

Unfortunately for some shareholders, the CEMATRIX Corporation (TSE:CEMX) share price has dived 28% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 26% in the last year.

In spite of the heavy fall in price, when around half the companies operating in Canada's Basic Materials industry have price-to-sales ratios (or "P/S") above 3x, you may still consider CEMATRIX as an incredibly enticing stock to check out with its 0.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for CEMATRIX

What Does CEMATRIX's P/S Mean For Shareholders?

Recent times have been advantageous for CEMATRIX as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 65%. The strong recent performance means it was also able to grow revenue by 130% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue growth is heading into negative territory, declining 2.2% over the next year. Meanwhile, the broader industry is forecast to expand by 9.0%, which paints a poor picture.

In light of this, it's understandable that CEMATRIX's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From CEMATRIX's P/S?

Shares in CEMATRIX have plummeted and its P/S has followed suit. 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.

It's clear to see that CEMATRIX maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for CEMATRIX you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.