More Unpleasant Surprises Could Be In Store For Focusrite plc's (LON:TUNE) Shares After Tumbling 25%

Focusrite plc (LON:TUNE) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 62% loss during that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Focusrite's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in the United Kingdom is about the same. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Focusrite

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

The recently shrinking revenue for Focusrite has been in line with the industry. The P/S ratio is probably moderate because investors think the company's revenue trend will continue to follow the rest of the industry. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. At the very least, you'd be hoping that revenue doesn't accelerate downwards if your plan is to pick up some stock while it's not in favour.

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

Is There Some Revenue Growth Forecasted For Focusrite?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Focusrite's 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 11%. As a result, revenue from three years ago have also fallen 8.9% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 2.6% each year as estimated by the five analysts watching the company. With the industry predicted to deliver 9.3% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's curious that Focusrite's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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

With its share price dropping off a cliff, the P/S for Focusrite looks to be in line with the rest of the Consumer Durables industry. 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.

Given that Focusrite's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Focusrite (1 is significant!) that you need to be mindful of.

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).

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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.