Positive Sentiment Still Eludes Genetec Corporation (TSE:4492) Following 34% Share Price Slump

Unfortunately for some shareholders, the Genetec Corporation (TSE:4492) share price has dived 34% in the last thirty days, prolonging recent pain. The last month has meant the stock is now only up 8.6% during the last year.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Genetec's P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the IT industry in Japan is also close to 1x. 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.

View our latest analysis for Genetec

What Does Genetec's Recent Performance Look Like?

Revenue has risen firmly for Genetec recently, which is pleasing to see. 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 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 not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Genetec will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Genetec?

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

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. Pleasingly, revenue has also lifted 75% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 5.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Genetec is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

With its share price dropping off a cliff, the P/S for Genetec looks to be in line with the rest of the IT industry. 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.

To our surprise, Genetec revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Genetec (1 is concerning!) that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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