iLearningEngines, Inc. (NASDAQ:AILE) shareholders that were waiting for something to happen have been dealt a blow with a 31% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.
Even after such a large drop in price, iLearningEngines' price-to-sales (or "P/S") ratio of 2.4x might still make it look like a buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 4.1x and even P/S above 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
NasdaqCM:AILE Price to Sales Ratio vs Industry April 23rd 2024
What Does iLearningEngines' P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, iLearningEngines has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Want the full picture on analyst estimates for the company? Then our free report on iLearningEngines will help you uncover what's on the horizon.
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 iLearningEngines' to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 36%. The latest three year period has also seen an excellent 174% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 27% each year over the next three years. With the industry only predicted to deliver 15% each year, the company is positioned for a stronger revenue result.
In light of this, it's peculiar that iLearningEngines' P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
What We Can Learn From iLearningEngines' P/S?
The southerly movements of iLearningEngines' shares means its P/S is now sitting at a pretty low level. 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.
To us, it seems iLearningEngines currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.
Don't forget that there may be other risks. For instance, we've identified 5 warning signs for iLearningEngines (4 are concerning) you should be aware of.
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).
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.