Lacklustre Performance Is Driving Viasat, Inc.'s (NASDAQ:VSAT) 31% Price Drop

The Viasat, Inc. (NASDAQ:VSAT) share price has fared very poorly over the last month, falling by a substantial 31%. For any long-term shareholders, the last month ends a year to forget by locking in a 67% share price decline.

After such a large drop in price, it would be understandable if you think Viasat is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.4x, considering almost half the companies in the United States' Communications industry have P/S ratios above 0.9x. 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 Viasat

What Does Viasat's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Viasat has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think Viasat's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 68%. The strong recent performance means it was also able to grow revenue by 123% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 4.0% each year during the coming three years according to the nine analysts following the company. With the industry predicted to deliver 8.1% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Viasat 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.

The Final Word

Viasat's recently weak share price has pulled its P/S back below other Communications companies. 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.

As expected, our analysis of Viasat'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. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Viasat you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com