There's No Escaping Socket Mobile, Inc.'s (NASDAQ:SCKT) Muted Revenues Despite A 47% Share Price Rise

The Socket Mobile, Inc. (NASDAQ:SCKT) share price has done very well over the last month, posting an excellent gain of 47%. Notwithstanding the latest gain, the annual share price return of 4.9% isn't as impressive.

Although its price has surged higher, Socket Mobile's price-to-sales (or "P/S") ratio of 0.6x might still make it look like a buy right now compared to the Tech industry in the United States, where around half of the companies have P/S ratios above 1.5x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Socket Mobile

What Does Socket Mobile's Recent Performance Look Like?

For instance, Socket Mobile's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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

How Is Socket Mobile's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Socket Mobile's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.1%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.6% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 6.2% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Socket Mobile's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Socket Mobile's stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Socket Mobile confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Socket Mobile (1 is concerning) you should be aware of.

If you're unsure about the strength of Socket Mobile's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.