Improved Revenues Required Before Nvni Group Limited (NASDAQ:NVNI) Stock's 53% Jump Looks Justified

Explore Nvni Group's Fair Values from the Community and select yours

Nvni Group Limited (NASDAQ:NVNI) shareholders would be excited to see that the share price has had a great month, posting a 53% gain and recovering from prior weakness. But the last month did very little to improve the 55% share price decline over the last year.

Although its price has surged higher, Nvni Group's price-to-sales (or "P/S") ratio of 1.4x might still make it look like a strong buy right now compared to the wider Software industry in the United States, where around half of the companies have P/S ratios above 5x and even P/S above 12x 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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See our latest analysis for Nvni Group

What Does Nvni Group's P/S Mean For Shareholders?

Nvni Group's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could 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 Nvni Group.

How Is Nvni Group's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 14%. The latest three year period has also seen an excellent 115% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 9.9% as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 20%, which is noticeably more attractive.

With this in consideration, its clear as to why Nvni Group's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Nvni Group's P/S?

Nvni Group's recent share price jump still sees fails to bring its P/S alongside the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Nvni Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 5 warning signs for Nvni Group (3 are a bit unpleasant!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.