iPower Inc.'s (NASDAQ:IPW) Shares Leap 38% Yet They're Still Not Telling The Full Story

iPower Inc. (NASDAQ:IPW) shareholders are no doubt pleased to see that the share price has bounced 38% in the last month, although it is still struggling to make up recently lost ground. The last month tops off a massive increase of 155% in the last year.

Even after such a large jump in price, it's still not a stretch to say that iPower's price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" compared to the Trade Distributors industry in the United States, where the median P/S ratio is around 1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for iPower

How iPower Has Been Performing

While the industry has experienced revenue growth lately, iPower's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For iPower?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.2%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 59% in total over the last three years. 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 year should generate growth of 7.2% as estimated by the sole analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 4.6%, which is noticeably less attractive.

With this in consideration, we find it intriguing that iPower's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

iPower appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Looking at iPower's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

And what about other risks? Every company has them, and we've spotted 4 warning signs for iPower (of which 2 make us uncomfortable!) you should know about.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.