Titan Machinery Inc. (NASDAQ:TITN) Stock Catapults 28% Though Its Price And Business Still Lag The Industry

Titan Machinery Inc. (NASDAQ:TITN) 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 12% over that time.

In spite of the firm bounce in price, when close to half the companies operating in the United States' Trade Distributors industry have price-to-sales ratios (or "P/S") above 1.2x, you may still consider Titan Machinery as an enticing stock to check out with its 0.2x P/S ratio. 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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See our latest analysis for Titan Machinery

How Has Titan Machinery Performed Recently?

Titan Machinery could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

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

How Is Titan Machinery's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Titan Machinery'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 2.0%. Even so, admirably revenue has lifted 58% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue growth is heading into negative territory, declining 3.6% per annum over the next three years. That's not great when the rest of the industry is expected to grow by 131% each year.

In light of this, it's understandable that Titan Machinery's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Despite Titan Machinery's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Titan Machinery's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

It is also worth noting that we have found 1 warning sign for Titan Machinery 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.

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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.