Crexendo, Inc. (NASDAQ:CXDO) Stock's 36% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Crexendo, Inc. (NASDAQ:CXDO) shareholders that were waiting for something to happen have been dealt a blow with a 36% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 22% in that time.

Even after such a large drop in price, Crexendo's price-to-sales (or "P/S") ratio of 1.9x might still make it look like a buy right now compared to the IT industry in the United States, where around half of the companies have P/S ratios above 2.4x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for Crexendo

How Crexendo Has Been Performing

With revenue growth that's inferior to most other companies of late, Crexendo has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 117% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 12% per year over the next three years. That's shaping up to be similar to the 11% per year growth forecast for the broader industry.

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

The Bottom Line On Crexendo's P/S

Crexendo's P/S has taken a dip along with its share price. 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.

We've seen that Crexendo currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you settle on your opinion, we've discovered 1 warning sign for Crexendo that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.