Risks Still Elevated At These Prices As Syntec Optics Holdings, Inc. (NASDAQ:OPTX) Shares Dive 28%

Syntec Optics Holdings, Inc. (NASDAQ:OPTX) shares have retraced a considerable 28% in the last month, reversing a fair amount of their solid recent performance. For any long-term shareholders, the last month ends a year to forget by locking in a 58% share price decline.

Even after such a large drop in price, it's still not a stretch to say that Syntec Optics Holdings' price-to-sales (or "P/S") ratio of 2.4x right now seems quite "middle-of-the-road" compared to the Electronic industry in the United States, where the median P/S ratio is around 2.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Syntec Optics Holdings

How Syntec Optics Holdings Has Been Performing

Revenue has risen at a steady rate over the last year for Syntec Optics Holdings, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. Those who are bullish on Syntec Optics Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Syntec Optics Holdings will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Syntec Optics Holdings?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Syntec Optics Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 4.4%. Revenue has also lifted 10% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 10% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Syntec Optics Holdings' P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Following Syntec Optics Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Our examination of Syntec Optics Holdings revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

You need to take note of risks, for example - Syntec Optics Holdings has 4 warning signs (and 2 which are concerning) we think you should know about.

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.