A Piece Of The Puzzle Missing From PowerFleet, Inc.'s (NASDAQ:AIOT) 25% Share Price Climb

PowerFleet, Inc. (NASDAQ:AIOT) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 7.7% isn't as impressive.

In spite of the firm bounce in price, PowerFleet's price-to-sales (or "P/S") ratio of 1.8x might still make it look like a buy right now compared to the Electronic 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. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for PowerFleet

How PowerFleet Has Been Performing

With revenue growth that's superior to most other companies of late, PowerFleet has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on PowerFleet.

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

PowerFleet's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 120% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 198% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 13% as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 13%, which is not materially different.

In light of this, it's peculiar that PowerFleet's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does PowerFleet's P/S Mean For Investors?

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

We've seen that PowerFleet currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

It is also worth noting that we have found 1 warning sign for PowerFleet 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.