Cemtrex, Inc. (NASDAQ:CETX) Might Not Be As Mispriced As It Looks After Plunging 62%

Unfortunately for some shareholders, the Cemtrex, Inc. (NASDAQ:CETX) share price has dived 62% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 100% share price decline.

Following the heavy fall in price, Cemtrex's price-to-sales (or "P/S") ratio of 1.5x 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.

See our latest analysis for Cemtrex

How Cemtrex Has Been Performing

Cemtrex has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Cemtrex will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

Cemtrex'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.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. Pleasingly, revenue has also lifted 67% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 9.4%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that Cemtrex's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Cemtrex's P/S?

Cemtrex's recently weak share price has pulled its P/S back below other Electronic companies. 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.

Our examination of Cemtrex revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Cemtrex that you should be aware of.

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