There's No Escaping Airgain, Inc.'s (NASDAQ:AIRG) Muted Revenues

Airgain, Inc.'s (NASDAQ:AIRG) price-to-sales (or "P/S") ratio of 1.1x might 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 2x and even P/S above 5x 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.

Check out our latest analysis for Airgain

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

With revenue growth that's superior to most other companies of late, Airgain has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is Airgain's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 8.1% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 5.7% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 0.7% during the coming year according to the three analysts following the company. That's not great when the rest of the industry is expected to grow by 9.8%.

With this in consideration, we find it intriguing that Airgain's P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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.

It's clear to see that Airgain maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Airgain that you need to take into consideration.

If you're unsure about the strength of Airgain'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.