Not Many Are Piling Into Almedio Inc. (TSE:7859) Stock Yet As It Plummets 48%

Unfortunately for some shareholders, the Almedio Inc. (TSE:7859) share price has dived 48% in the last thirty days, prolonging recent pain. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 10%.

Even after such a large drop in price, there still wouldn't be many who think Almedio's price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S in Japan's Electronic industry is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Almedio

How Almedio Has Been Performing

Almedio certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Almedio 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 Almedio's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

Almedio's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 134%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 7.0%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Almedio'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 Bottom Line On Almedio's P/S

With its share price dropping off a cliff, the P/S for Almedio looks to be in line with the rest of the Electronic industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We didn't quite envision Almedio'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. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Having said that, be aware Almedio is showing 4 warning signs in our investment analysis, and 2 of those make us uncomfortable.

If you're unsure about the strength of Almedio's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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.