Not Many Are Piling Into Idomoo Ltd. (TLV:IDMO) Stock Yet As It Plummets 27%

To the annoyance of some shareholders, Idomoo Ltd. (TLV:IDMO) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 24% share price drop.

Following the heavy fall in price, Idomoo may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Software industry in Israel have P/S ratios greater than 3.7x and even P/S higher than 6x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Idomoo

What Does Idomoo's Recent Performance Look Like?

The revenue growth achieved at Idomoo over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for Idomoo, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

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

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. The strong recent performance means it was also able to grow revenue by 93% 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.

Comparing that to the industry, which is only predicted to deliver 21% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Idomoo's P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Idomoo's P/S

Shares in Idomoo 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.

We're very surprised to see Idomoo currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 5 warning signs for Idomoo you should be aware of.

If you're unsure about the strength of Idomoo's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.

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