Lacklustre Performance Is Driving Daktronics, Inc.'s (NASDAQ:DAKT) 25% Price Drop

To the annoyance of some shareholders, Daktronics, Inc. (NASDAQ:DAKT) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Looking at the bigger picture, even after this poor month the stock is up 33% in the last year.

Even after such a large drop in price, Daktronics may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.7x, considering almost half of all companies in the Electronic industry in the United States have P/S ratios greater than 1.8x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Daktronics

What Does Daktronics' Recent Performance Look Like?

Daktronics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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.

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

How Is Daktronics' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 1.5% decrease to the company's top line. Even so, admirably revenue has lifted 41% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 0.6% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 9.6%, which is noticeably more attractive.

With this information, we can see why Daktronics is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Daktronics' P/S?

Daktronics' recently weak share price has pulled its P/S back below other Electronic companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Daktronics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Daktronics that we have uncovered.

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.