Stock Analysis

Hurco Companies, Inc.'s (NASDAQ:HURC) Business And Shares Still Trailing The Industry

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NasdaqGS:HURC

Hurco Companies, Inc.'s (NASDAQ:HURC) price-to-sales (or "P/S") ratio of 0.7x might make it look like a buy right now compared to the Machinery industry in the United States, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. 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 Hurco Companies

NasdaqGS:HURC Price to Sales Ratio vs Industry February 20th 2025

How Hurco Companies Has Been Performing

As an illustration, revenue has deteriorated at Hurco Companies over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hurco Companies' earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Hurco Companies' 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 18%. As a result, revenue from three years ago have also fallen 21% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

This is in contrast to the rest of the industry, which is expected to decline by 0.5% over the next year, or less than the company's recent medium-term annualised revenue decline.

In light of this, it's understandable that Hurco Companies' P/S sits below the majority of other companies. Nonetheless, with revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

What We Can Learn From Hurco Companies' P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, our analysis of Hurco Companies confirms that the company's severe contraction in revenue over the past three-year years is a major contributor to its lower than industry P/S, given the industry is set to decline less. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. However, we're still cautious about the company's ability to prevent an acceleration of its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. For now though, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Hurco Companies 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.

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

Discover if Hurco Companies 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.