SecureKloud Technologies Limited (NSE:SECURKLOUD) Looks Inexpensive After Falling 25% But Perhaps Not Attractive Enough

Unfortunately for some shareholders, the SecureKloud Technologies Limited (NSE:SECURKLOUD) share price has dived 25% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 60% share price decline.

Following the heavy fall in price, SecureKloud Technologies' price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the wider Software industry in India, where around half of the companies have P/S ratios above 4.6x and even P/S above 8x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for SecureKloud Technologies

How SecureKloud Technologies Has Been Performing

For instance, SecureKloud 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 SecureKloud 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 SecureKloud Technologies' earnings, revenue and cash flow.

How Is SecureKloud Technologies' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as SecureKloud Technologies' is when the company's growth is on track to lag the industry decidedly.

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 51%. As a result, revenue from three years ago have also fallen 46% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 16% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that SecureKloud Technologies is trading at a P/S lower than the industry. 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. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Shares in SecureKloud Technologies 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.

Our examination of SecureKloud Technologies confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for SecureKloud Technologies you should know about.

If these risks are making you reconsider your opinion on SecureKloud Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.