It's Down 25% But Invesque Inc. (TSE:IVQ) Could Be Riskier Than It Looks

Invesque Inc. (TSE:IVQ) shares have had a horrible month, losing 25% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

Since its price has dipped substantially, Invesque may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Real Estate industry in Canada have P/S ratios greater than 2.9x and even P/S higher than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Invesque

How Invesque Has Been Performing

For example, consider that Invesque's financial performance has been pretty ordinary lately as revenue growth is non-existent. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. If not, then existing shareholders may be feeling 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 Invesque will help you shine a light on its historical performance.

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 Invesque's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period was better as it's delivered a decent 6.2% overall rise in revenue. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing that to the industry, which is predicted to deliver 1.1% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

In light of this, it's peculiar that Invesque's P/S sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Bottom Line On Invesque's P/S

Invesque's P/S looks about as weak as its stock price lately. 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.

The fact that Invesque currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Invesque (1 is significant!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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.