Take Care Before Jumping Onto NextPlat Corp (NASDAQ:NXPL) Even Though It's 29% Cheaper

NextPlat Corp (NASDAQ:NXPL) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 50% share price drop.

Since its price has dipped substantially, NextPlat may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Telecom industry in the United States have P/S ratios greater than 1.3x and even P/S higher than 4x aren't out of the ordinary. 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 NextPlat

How NextPlat Has Been Performing

NextPlat certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite 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 NextPlat will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For NextPlat?

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

Retrospectively, the last year delivered an exceptional 180% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 39% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that NextPlat's P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

NextPlat's recently weak share price has pulled its P/S back below other Telecom companies. 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 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. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 4 warning signs for NextPlat (of which 1 is significant!) 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.