Investors Don't See Light At End Of Semac Consultants Limited's (NSE:SEMAC) Tunnel And Push Stock Down 26%

The Semac Consultants Limited (NSE:SEMAC) share price has fared very poorly over the last month, falling by a substantial 26%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 89% loss during that time.

Following the heavy fall in price, Semac Consultants' price-to-sales (or "P/S") ratio of 0.8x might make it look like a buy right now compared to the Machinery industry in India, where around half of the companies have P/S ratios above 2.7x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Semac Consultants

What Does Semac Consultants' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Semac Consultants over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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

How Is Semac Consultants' Revenue Growth Trending?

In order to justify its P/S ratio, Semac Consultants would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 59% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 37% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 17% shows it's an unpleasant look.

With this in mind, we understand why Semac Consultants' P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does Semac Consultants' P/S Mean For Investors?

Semac Consultants' recently weak share price has pulled its P/S back below other Machinery companies. 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.

It's no surprise that Semac Consultants maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

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

If you're unsure about the strength of Semac Consultants' 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.