Investors Give Stem, Inc. (NYSE:STEM) Shares A 28% Hiding

Stem, Inc. (NYSE:STEM) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 87% loss during that time.

After such a large drop in price, Stem may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Electrical industry in the United States have P/S ratios greater than 1.7x and even P/S higher than 5x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Stem

How Has Stem Performed Recently?

Stem hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Stem will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 43% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 175% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 33% per annum during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 29% each year, which is noticeably less attractive.

With this in consideration, we find it intriguing that Stem's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Stem's recently weak share price has pulled its P/S back below other Electrical companies. 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.

Stem's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. 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. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

You should always think about risks. Case in point, we've spotted 5 warning signs for Stem you should be aware of, and 2 of them don't sit too well with us.

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.