Some Stoneridge, Inc. (NYSE:SRI) Shareholders Look For Exit As Shares Take 34% Pounding

To the annoyance of some shareholders, Stoneridge, Inc. (NYSE:SRI) shares are down a considerable 34% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 59% share price decline.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Stoneridge's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Auto Components industry in the United States is also close to 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Stoneridge

What Does Stoneridge's Recent Performance Look Like?

Recent times haven't been great for Stoneridge as its revenue has been falling quicker than most other companies. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. You'd much rather the company improve its revenue if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Stoneridge will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Stoneridge?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.9%. Regardless, revenue has managed to lift by a handy 22% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 7.5% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 23%, which is noticeably more attractive.

With this information, we find it interesting that Stoneridge is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Stoneridge's P/S?

Stoneridge's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given that Stoneridge's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Before you take the next step, you should know about the 2 warning signs for Stoneridge that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.