It's Down 26% But Cambium Networks Corporation (NASDAQ:CMBM) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the Cambium Networks Corporation (NASDAQ:CMBM) share price has dived 26% 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 84% share price decline.

After such a large drop in price, Cambium Networks' price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Communications industry in the United States, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Cambium Networks

What Does Cambium Networks' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Cambium Networks' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is Cambium Networks' Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 41%. As a result, revenue from three years ago have also fallen 40% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 22% as estimated by the five analysts watching the company. With the industry only predicted to deliver 4.7%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Cambium Networks is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Cambium Networks' P/S

Cambium Networks' recently weak share price has pulled its P/S back below other Communications companies. 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.

A look at Cambium Networks' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Cambium Networks (1 makes us a bit uncomfortable) you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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