Investors Still Aren't Entirely Convinced By urban-gro, Inc.'s (NASDAQ:UGRO) Revenues Despite 54% Price Jump

urban-gro, Inc. (NASDAQ:UGRO) shares have had a really impressive month, gaining 54% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 44% in the last twelve months.

Although its price has surged higher, given about half the companies operating in the United States' Machinery industry have price-to-sales ratios (or "P/S") above 1.4x, you may still consider urban-gro as an attractive investment with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for urban-gro

How urban-gro Has Been Performing

urban-gro could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could 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 urban-gro.

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

In order to justify its P/S ratio, urban-gro would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 7.6% gain to the company's revenues. Pleasingly, revenue has also lifted 211% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 30% each year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 6.4% per year, which is noticeably less attractive.

In light of this, it's peculiar that urban-gro'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 Bottom Line On urban-gro's P/S

urban-gro's stock price has surged recently, but its but its P/S still remains modest. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To us, it seems urban-gro currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward 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.

We don't want to rain on the parade too much, but we did also find 4 warning signs for urban-gro that you need to be mindful of.

If these risks are making you reconsider your opinion on urban-gro, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.