A Piece Of The Puzzle Missing From FTC Solar, Inc.'s (NASDAQ:FTCI) 30% Share Price Climb

FTC Solar, Inc. (NASDAQ:FTCI) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 85% share price decline over the last year.

Even after such a large jump in price, FTC Solar may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Electrical industry in the United States have P/S ratios greater than 1.7x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for FTC Solar

What Does FTC Solar's Recent Performance Look Like?

While the industry has experienced revenue growth lately, FTC Solar's 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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like FTC Solar'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 14%. The last three years don't look nice either as the company has shrunk revenue by 55% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 60% each year over the next three years. That's shaping up to be materially higher than the 47% per year growth forecast for the broader industry.

In light of this, it's peculiar that FTC Solar's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

The latest share price surge wasn't enough to lift FTC Solar's P/S close to the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

A look at FTC Solar's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. 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.

There are also other vital risk factors to consider before investing and we've discovered 4 warning signs for FTC Solar that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.