AVerMedia Technologies, Inc.'s (TWSE:2417) 31% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

The AVerMedia Technologies, Inc. (TWSE:2417) share price has softened a substantial 31% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 91%, which is great even in a bull market.

In spite of the heavy fall in price, it's still not a stretch to say that AVerMedia Technologies' price-to-sales (or "P/S") ratio of 1.7x right now seems quite "middle-of-the-road" compared to the Consumer Durables industry in Taiwan, where the median P/S ratio is around 1.9x. 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 AVerMedia Technologies

How Has AVerMedia Technologies Performed Recently?

For instance, AVerMedia Technologies' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is 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 AVerMedia Technologies will help you shine a light on its historical performance.

How Is AVerMedia Technologies' Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. The last three years don't look nice either as the company has shrunk revenue by 57% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 8.6% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that AVerMedia Technologies is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

With its share price dropping off a cliff, the P/S for AVerMedia Technologies looks to be in line with the rest of the Consumer Durables industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at AVerMedia Technologies revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you take the next step, you should know about the 2 warning signs for AVerMedia Technologies (1 makes us a bit uncomfortable!) that we have uncovered.

If you're unsure about the strength of AVerMedia Technologies' 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.

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