James River Group Holdings, Ltd. (NASDAQ:JRVR) Stock's 27% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The James River Group Holdings, Ltd. (NASDAQ:JRVR) share price has fared very poorly over the last month, falling by a substantial 27%. For any long-term shareholders, the last month ends a year to forget by locking in a 64% share price decline.

Following the heavy fall in price, considering around half the companies operating in the United States' Insurance industry have price-to-sales ratios (or "P/S") above 1.1x, you may consider James River Group Holdings as an solid investment opportunity with its 0.2x 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.

See our latest analysis for James River Group Holdings

How James River Group Holdings Has Been Performing

James River Group Holdings 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. If you still 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 James River Group Holdings.

How Is James River Group Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 16% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 10% during the coming year according to the four analysts following the company. With the industry only predicted to deliver 5.0%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that James River Group Holdings' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On James River Group Holdings' P/S

James River Group Holdings' recently weak share price has pulled its P/S back below other Insurance companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

A look at James River Group Holdings' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for James River Group Holdings that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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.