Not Many Are Piling Into CommScope Holding Company, Inc. (NASDAQ:COMM) Stock Yet As It Plummets 34%

The CommScope Holding Company, Inc. (NASDAQ:COMM) share price has fared very poorly over the last month, falling by a substantial 34%. The good news is that in the last year, the stock has shone bright like a diamond, gaining 214%.

After such a large drop in price, it would be understandable if you think CommScope Holding Company is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.2x, considering almost half the companies in the United States' Communications industry have P/S ratios above 1.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for CommScope Holding Company

What Does CommScope Holding Company's P/S Mean For Shareholders?

CommScope Holding Company could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

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

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

In order to justify its P/S ratio, CommScope Holding Company would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 7.9% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 38% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 9.7% per annum as estimated by the six analysts watching the company. With the industry predicted to deliver 8.6% growth each year, the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that CommScope Holding Company's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

CommScope Holding Company's recently weak share price has pulled its P/S back below other Communications companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've seen that CommScope Holding Company currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for CommScope Holding Company (1 makes us a bit uncomfortable) you should be aware of.

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.