Stock Analysis

Positive Sentiment Still Eludes Tritium DCFC Limited (NASDAQ:DCFC) Following 32% Share Price Slump

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Tritium DCFC Limited (NASDAQ:DCFC) shares have had a horrible month, losing 32% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 86% share price decline.

Since its price has dipped substantially, Tritium DCFC may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.4x, since almost half of all companies in the Electrical industry in the United States have P/S ratios greater than 1.9x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Tritium DCFC

NasdaqGM:DCFC Price to Sales Ratio vs Industry September 1st 2023

What Does Tritium DCFC's P/S Mean For Shareholders?

Recent times have been advantageous for Tritium DCFC as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

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

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

Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. The latest three year period has also seen an excellent 116% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 102% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 66% per annum, which is noticeably less attractive.

With this in consideration, we find it intriguing that Tritium DCFC's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Tritium DCFC's P/S has taken a dip along with its share price. 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.

Tritium DCFC's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

It is also worth noting that we have found 5 warning signs for Tritium DCFC (1 is a bit concerning!) that you need to take into consideration.

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.

Valuation is complex, but we're here to simplify it.

Discover if Tritium DCFC might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.