Market Might Still Lack Some Conviction On Flux Power Holdings, Inc. (NASDAQ:FLUX) Even After 28% Share Price Boost

Flux Power Holdings, Inc. (NASDAQ:FLUX) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 43% over that time.

In spite of the firm bounce in price, Flux Power Holdings' price-to-sales (or "P/S") ratio of 0.5x might still make it look like a buy right now compared to the Electrical industry in the United States, where around half of the companies have P/S ratios above 1.9x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Flux Power Holdings

How Flux Power Holdings Has Been Performing

While the industry has experienced revenue growth lately, Flux Power Holdings' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

The only time you'd be truly comfortable seeing a P/S as low as Flux Power Holdings' is when the company's growth is on track to lag the industry.

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 1.2%. Even so, admirably revenue has lifted 78% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 21% each year as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 14% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that Flux Power Holdings' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Flux Power Holdings' P/S

Flux Power Holdings' stock price has surged recently, but its but its P/S still remains modest. 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.

A look at Flux Power Holdings' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Flux Power Holdings (1 can't be ignored) you should be aware of.

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.