Nvni Group Limited (NASDAQ:NVNI) Held Back By Insufficient Growth Even After Shares Climb 114%

Nvni Group Limited (NASDAQ:NVNI) shares have continued their recent momentum with a 114% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

Even after such a large jump in price, Nvni Group may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.3x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 5.3x and even P/S higher than 12x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Nvni Group

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

Recent times haven't been great for Nvni Group as its revenue has been rising slower than most other companies. 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, Nvni Group 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. Pleasingly, revenue has also lifted 115% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 one analyst watching the company. That's shaping up to be materially lower than the 21% growth forecast for the broader industry.

With this in consideration, its clear as to why Nvni Group's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Nvni Group's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of Nvni Group's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. 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.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Nvni Group (3 shouldn't be ignored!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Nvni Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.