Aemetis, Inc. (NASDAQ:AMTX) Stock's 38% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The Aemetis, Inc. (NASDAQ:AMTX) share price has fared very poorly over the last month, falling by a substantial 38%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 60% loss during that time.

After such a large drop in price, Aemetis may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.5x, since almost half of all companies in the Oil and Gas industry in the United States have P/S ratios greater than 1.5x and even P/S higher than 4x are not unusual. 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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Check out our latest analysis for Aemetis

How Aemetis Has Been Performing

Aemetis 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. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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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 Aemetis' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 31%. The last three years don't look nice either as the company has shrunk revenue by 21% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 76% per year during the coming three years according to the four analysts following the company. With the industry only predicted to deliver 3.6% each year, the company is positioned for a stronger revenue result.

With this information, we find it odd that Aemetis is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Aemetis' P/S?

The southerly movements of Aemetis' shares means its P/S is now sitting at a pretty low level. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

A look at Aemetis' 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Aemetis (at least 3 which shouldn't be ignored), and understanding these should be part of your investment process.

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

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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.