Crexendo, Inc. (NASDAQ:CXDO) Shares Slammed 34% But Getting In Cheap Might Be Difficult Regardless

Crexendo, Inc. (NASDAQ:CXDO) shares have retraced a considerable 34% in the last month, reversing a fair amount of their solid recent performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 151%.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Crexendo's P/S ratio of 2.4x, since the median price-to-sales (or "P/S") ratio for the IT industry in the United States is also close to 1.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Crexendo

What Does Crexendo's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Crexendo has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Crexendo will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Crexendo?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Crexendo's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 42%. The latest three year period has also seen an excellent 225% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 9.8% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 9.0%, which is not materially different.

With this in mind, it makes sense that Crexendo's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

Crexendo's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

A Crexendo's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the IT industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Crexendo (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

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

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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.