Vuzix Corporation (NASDAQ:VUZI) Stocks Pounded By 29% But Not Lagging Industry On Growth Or Pricing

Vuzix Corporation (NASDAQ:VUZI) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 55% loss during that time.

Although its price has dipped substantially, given around half the companies in the United States' Electronic industry have price-to-sales ratios (or "P/S") below 1.6x, you may still consider Vuzix as a stock to avoid entirely with its 17x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Vuzix

What Does Vuzix's Recent Performance Look Like?

Vuzix certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 Vuzix.

How Is Vuzix's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 28% gain to the company's top line. The latest three year period has also seen an excellent 98% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 50% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 11% growth forecast for the broader industry.

In light of this, it's understandable that Vuzix's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

A significant share price dive has done very little to deflate Vuzix's very lofty P/S. 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 look into Vuzix shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Vuzix (1 doesn't sit too well with us!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.