Universal Electronics Inc.'s (NASDAQ:UEIC) 28% Share Price Plunge Could Signal Some Risk

Unfortunately for some shareholders, the Universal Electronics Inc. (NASDAQ:UEIC) share price has dived 28% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 61% loss during that time.

In spite of the heavy fall in price, it's still not a stretch to say that Universal Electronics' price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Consumer Durables industry in the United States, where the median P/S ratio is around 0.6x. 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.

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See our latest analysis for Universal Electronics

How Has Universal Electronics Performed Recently?

Recent revenue growth for Universal Electronics has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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

How Is Universal Electronics' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 4.0%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 30% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 6.2% during the coming year according to the two analysts following the company. Meanwhile, the broader industry is forecast to expand by 1.8%, which paints a poor picture.

With this information, we find it concerning that Universal Electronics is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Bottom Line On Universal Electronics' P/S

With its share price dropping off a cliff, the P/S for Universal Electronics looks to be in line with the rest of the Consumer Durables industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It appears that Universal Electronics currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

You should always think about risks. Case in point, we've spotted 2 warning signs for Universal Electronics you should be aware of.

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).

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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.