Slammed 25% CN Energy Group. Inc. (NASDAQ:CNEY) Screens Well Here But There Might Be A Catch

Unfortunately for some shareholders, the CN Energy Group. Inc. (NASDAQ:CNEY) share price has dived 25% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 85% loss during that time.

Since its price has dipped substantially, when close to half the companies operating in the United States' Chemicals industry have price-to-sales ratios (or "P/S") above 1.1x, you may consider CN Energy Group as an enticing stock to check out 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.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

See our latest analysis for CN Energy Group

How CN Energy Group Has Been Performing

For instance, CN Energy Group's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on CN Energy Group's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 46%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 40% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 5.5% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that CN Energy Group's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

The southerly movements of CN Energy Group's shares means its P/S is now sitting at a pretty low level. 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.

Our examination of CN Energy Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

We don't want to rain on the parade too much, but we did also find 4 warning signs for CN Energy Group 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.