Invinity Energy Systems plc (LON:IES) Might Not Be As Mispriced As It Looks After Plunging 46%

Invinity Energy Systems plc (LON:IES) shareholders that were waiting for something to happen have been dealt a blow with a 46% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 74% loss during that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Invinity Energy Systems' P/S ratio of 2.3x, since the median price-to-sales (or "P/S") ratio for the Electrical industry in the United Kingdom is about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Invinity Energy Systems

What Does Invinity Energy Systems' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Invinity Energy Systems has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Invinity Energy Systems.

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

In order to justify its P/S ratio, Invinity Energy Systems would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 96% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 87% per year, which is noticeably less attractive.

In light of this, it's curious that Invinity Energy Systems' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Following Invinity Energy Systems' share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Looking at Invinity Energy Systems' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Invinity Energy Systems (of which 2 make us uncomfortable!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.