What You Can Learn From Innoviz Technologies Ltd.'s (NASDAQ:INVZ) P/S After Its 26% Share Price Crash

Innoviz Technologies Ltd. (NASDAQ:INVZ) shares have had a horrible month, losing 26% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 63% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for thinking Innoviz Technologies is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.1x, considering almost half the companies in the United States' Electronic industry have P/S ratios below 2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Innoviz Technologies

How Has Innoviz Technologies Performed Recently?

With revenue growth that's superior to most other companies of late, Innoviz Technologies has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

The only time you'd be truly comfortable seeing a P/S as high as Innoviz Technologies' is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 146% per year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 11% per annum growth forecast for the broader industry.

In light of this, it's understandable that Innoviz Technologies' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Innoviz Technologies' P/S?

Innoviz Technologies' P/S remain high even after its stock plunged. 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 established that Innoviz Technologies maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electronic industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

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

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.