Panache Digilife Limited (NSE:PANACHE) Stock's 26% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The Panache Digilife Limited (NSE:PANACHE) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. The good news is that in the last year, the stock has shone bright like a diamond, gaining 238%.

In spite of the heavy fall in price, there still wouldn't be many who think Panache Digilife's price-to-sales (or "P/S") ratio of 2.6x is worth a mention when the median P/S in India's Tech industry is similar at about 2.3x. 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.

See our latest analysis for Panache Digilife

How Has Panache Digilife Performed Recently?

The revenue growth achieved at Panache Digilife over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Panache Digilife?

The only time you'd be comfortable seeing a P/S like Panache Digilife's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 15%. The latest three year period has also seen an excellent 90% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 16% shows it's noticeably more attractive.

In light of this, it's curious that Panache Digilife's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Panache Digilife's plummeting stock price has brought its P/S back to a similar region as the rest of the 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.

We didn't quite envision Panache Digilife's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

You should always think about risks. Case in point, we've spotted 3 warning signs for Panache Digilife you should be aware of, and 1 of them is significant.

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.