SunCar Technology Group Inc. (NASDAQ:SDA) Stock's 27% Dive Might Signal An Opportunity But It Requires Some Scrutiny

SunCar Technology Group Inc. (NASDAQ:SDA) shares have had a horrible month, losing 27% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 79% loss during that time.

After such a large drop in price, given about half the companies operating in the United States' Consumer Services industry have price-to-sales ratios (or "P/S") above 1.5x, you may consider SunCar Technology Group as an attractive investment with its 0.4x 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.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

View our latest analysis for SunCar Technology Group

What Does SunCar Technology Group's P/S Mean For Shareholders?

SunCar Technology Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you 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 SunCar Technology Group.

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

In order to justify its P/S ratio, SunCar Technology Group would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. Pleasingly, revenue has also lifted 80% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 21% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 12%, which is noticeably less attractive.

With this information, we find it odd that SunCar Technology Group is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On SunCar Technology Group's P/S

SunCar Technology Group's recently weak share price has pulled its P/S back below other Consumer Services 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.

To us, it seems SunCar Technology Group 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.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for SunCar Technology Group with six simple checks.

If you're unsure about the strength of SunCar Technology Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.