The Market Doesn't Like What It Sees From SIOS Corporation's (TSE:3744) Revenues Yet As Shares Tumble 26%

The SIOS Corporation (TSE:3744) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 64% in the last year.

Following the heavy fall in price, considering around half the companies operating in Japan's Software industry have price-to-sales ratios (or "P/S") above 2.1x, you may consider SIOS as an solid investment opportunity with its 0.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for SIOS

How Has SIOS Performed Recently?

Revenue has risen firmly for SIOS recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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 SIOS' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For SIOS?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. The latest three year period has also seen a 7.1% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 14% shows it's noticeably less attractive.

In light of this, it's understandable that SIOS' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

SIOS' recently weak share price has pulled its P/S back below other Software companies. 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.

As we suspected, our examination of SIOS revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 4 warning signs for SIOS (3 are significant!) that you should be aware of before investing here.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.