Investors Give ARB IOT Group Limited (NASDAQ:ARBB) Shares A 26% Hiding

Unfortunately for some shareholders, the ARB IOT Group Limited (NASDAQ:ARBB) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 31% share price drop.

After such a large drop in price, ARB IOT Group's price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the wider IT industry in the United States, where around half of the companies have P/S ratios above 2.7x and even P/S above 13x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for ARB IOT Group

What Does ARB IOT Group's Recent Performance Look Like?

ARB IOT Group 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 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 ARB IOT Group.

How Is ARB IOT Group's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 27% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 41% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 178% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 20%, which is noticeably less attractive.

With this in consideration, we find it intriguing that ARB IOT Group's 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 Final Word

Shares in ARB IOT Group have plummeted and its P/S has followed suit. 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.

ARB IOT Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. 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.

Before you take the next step, you should know about the 2 warning signs for ARB IOT Group (1 doesn't sit too well with us!) that we have uncovered.

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).

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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.