What XAVi Technologies Corporation's (TWSE:3447) 29% Share Price Gain Is Not Telling You

XAVi Technologies Corporation (TWSE:3447) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 34% in the last year.

Although its price has surged higher, it's still not a stretch to say that XAVi Technologies' price-to-sales (or "P/S") ratio of 2.3x right now seems quite "middle-of-the-road" compared to the Communications industry in Taiwan, where the median P/S ratio is around 2.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for XAVi Technologies

How Has XAVi Technologies Performed Recently?

As an illustration, revenue has deteriorated at XAVi Technologies over the last year, which is not ideal at all. 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 not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for XAVi Technologies, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For XAVi Technologies?

There's an inherent assumption that a company should be matching the industry for P/S ratios like XAVi Technologies' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 65% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 40% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 18% shows it's an unpleasant look.

With this information, we find it concerning that XAVi 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.

What Does XAVi Technologies' P/S Mean For Investors?

XAVi Technologies appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the 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.

We find it unexpected that XAVi Technologies trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected 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 the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

There are also other vital risk factors to consider and we've discovered 2 warning signs for XAVi Technologies (1 is a bit concerning!) 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.