Wellfield Technologies Inc. (CVE:WFLD) Looks Inexpensive After Falling 31% But Perhaps Not Attractive Enough

Wellfield Technologies Inc. (CVE:WFLD) shareholders won't be pleased to see that the share price has had a very rough month, dropping 31% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 82% share price decline.

Since its price has dipped substantially, Wellfield Technologies' price-to-sales (or "P/S") ratio of 0.2x might make it look like a strong buy right now compared to the wider Software industry in Canada, where around half of the companies have P/S ratios above 3.4x 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.

View our latest analysis for Wellfield Technologies

How Wellfield Technologies Has Been Performing

For instance, Wellfield Technologies' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Wellfield Technologies 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 Wellfield Technologies' earnings, revenue and cash flow.

How Is Wellfield Technologies' Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 41%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why Wellfield Technologies' P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Wellfield Technologies' P/S?

Wellfield Technologies' 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.

As we suspected, our examination of Wellfield Technologies revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term 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 6 warning signs for Wellfield Technologies (of which 5 can't be ignored!) you should know about.

If you're unsure about the strength of Wellfield 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.

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