The Flux Power Holdings, Inc. (NASDAQ:FLUX) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 26% share price drop.

After such a large drop in price, Flux Power Holdings may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1x, since almost half of all companies in the Electrical industry in the United States have P/S ratios greater than 1.8x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Flux Power Holdings' Recent Performance Look Like?

Recent times haven't been great for Flux Power Holdings as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

How Is Flux Power Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Flux Power Holdings' is when the company's growth is on track to lag the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. However, a few strong years before that means that it was still able to grow revenue by an impressive 189% in total over the last three years. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 28% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 36% per annum, which is noticeably more attractive.

With this information, we can see why Flux Power Holdings is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Flux Power Holdings' P/S?

Flux Power Holdings' P/S has taken a dip along with its share price. 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.

As expected, our analysis of Flux Power Holdings' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware Flux Power Holdings is showing 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.