Tigo Energy, Inc. (NASDAQ:TYGO) Might Not Be As Mispriced As It Looks After Plunging 28%

The Tigo Energy, Inc. (NASDAQ:TYGO) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 72%, which is great even in a bull market.

Since its price has dipped substantially, Tigo Energy's price-to-sales (or "P/S") ratio of 1.4x might 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 2.2x 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 Tigo Energy

What Does Tigo Energy's Recent Performance Look Like?

Tigo Energy certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

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

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

Taking a look back first, we see that the company grew revenue by an impressive 97% last year. The latest three year period has also seen an excellent 58% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 32% per year over the next three years. With the industry only predicted to deliver 17% per year, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Tigo Energy's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Tigo Energy's P/S

The southerly movements of Tigo Energy's shares means its P/S is now sitting at a pretty low level. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

A look at Tigo Energy's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Tigo Energy you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.