Market Cool On EuroDry Ltd.'s (NASDAQ:EDRY) Revenues Pushing Shares 25% Lower

The EuroDry Ltd. (NASDAQ:EDRY) share price has fared very poorly over the last month, falling by a substantial 25%. Indeed, the recent drop has reduced its annual gain to a relatively sedate 5.2% over the last twelve months.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about EuroDry's P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the Shipping industry in the United States is also close to 1.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for EuroDry

What Does EuroDry's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, EuroDry has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on EuroDry.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like EuroDry's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 9.8%. This was backed up an excellent period prior to see revenue up by 61% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 31% during the coming year according to the three analysts following the company. With the industry only predicted to deliver 0.3%, the company is positioned for a stronger revenue result.

In light of this, it's curious that EuroDry's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On EuroDry's P/S

With its share price dropping off a cliff, the P/S for EuroDry looks to be in line with the rest of the Shipping industry. 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.

Looking at EuroDry's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for EuroDry (1 is a bit unpleasant!) that we have uncovered.

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