Infinera Corporation's (NASDAQ:INFN) Business And Shares Still Trailing The Industry

Infinera Corporation's (NASDAQ:INFN) price-to-sales (or "P/S") ratio of 0.6x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Communications industry in the United States have P/S ratios greater than 1.2x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Infinera

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

Infinera's revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could 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 Infinera will help you uncover what's on the horizon.

How Is Infinera's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Revenue has also lifted 22% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 6.0% as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 8.7%, which is noticeably more attractive.

With this information, we can see why Infinera is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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

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 expected, our analysis of Infinera's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. 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.

Before you take the next step, you should know about the 1 warning sign for Infinera 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.