Investors Give Photon Energy N.V. (WSE:PEN) Shares A 26% Hiding

The Photon Energy N.V. (WSE:PEN) share price has fared very poorly over the last month, falling by a substantial 26%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 61% loss during that time.

After such a large drop in price, Photon Energy's price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Electrical industry in Poland, where around half of the companies have P/S ratios above 1.1x and even P/S above 44x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Photon Energy

How Photon Energy Has Been Performing

Photon Energy certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think Photon Energy's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Photon Energy's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Photon Energy's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 77% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 12% during the coming year according to the one analyst following the company. That's shaping up to be materially higher than the 6.9% growth forecast for the broader industry.

In light of this, it's peculiar that Photon Energy's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

The southerly movements of Photon Energy's shares means its P/S is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

To us, it seems Photon Energy currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Photon Energy, and understanding these should be part of your investment process.

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

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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.