What You Can Learn From Byrna Technologies Inc.'s (NASDAQ:BYRN) P/S After Its 30% Share Price Crash

Byrna Technologies Inc. (NASDAQ:BYRN) shareholders won't be pleased to see that the share price has had a very rough month, dropping 30% and undoing the prior period's positive performance. The last month has meant the stock is now only up 5.4% during the last year.

Even after such a large drop in price, you could still be forgiven for thinking Byrna Technologies is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.8x, considering almost half the companies in the United States' Aerospace & Defense industry have P/S ratios below 3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for Byrna Technologies

What Does Byrna Technologies' P/S Mean For Shareholders?

Byrna Technologies certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Byrna Technologies.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Byrna Technologies would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 51% last year. The latest three year period has also seen an excellent 157% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 24% as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 9.7% growth forecast for the broader industry.

With this information, we can see why Byrna Technologies is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

Despite the recent share price weakness, Byrna Technologies' P/S remains higher than most other companies in the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Byrna Technologies' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It is also worth noting that we have found 2 warning signs for Byrna Technologies (1 shouldn't be ignored!) that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.