Further Upside For NextPlat Corp (NASDAQ:NXPL) Shares Could Introduce Price Risks After 25% Bounce

NextPlat Corp (NASDAQ:NXPL) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 47% over that time.

In spite of the firm bounce in price, given about half the companies operating in the United States' Telecom industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider NextPlat as an attractive investment with its 0.2x 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 limited.

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See our latest analysis for NextPlat

How Has NextPlat Performed Recently?

Revenue has risen firmly for NextPlat recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on NextPlat will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for NextPlat, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, NextPlat would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 52% shows it's noticeably more attractive.

In light of this, it's peculiar that NextPlat's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does NextPlat's P/S Mean For Investors?

Despite NextPlat's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of NextPlat revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Before you take the next step, you should know about the 4 warning signs for NextPlat (2 are a bit concerning!) that we have uncovered.

If you're unsure about the strength of NextPlat'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.