Identiv, Inc. (NASDAQ:INVE) shareholders won't be pleased to see that the share price has had a very rough month, dropping 31% and undoing the prior period's positive performance. The recent drop has obliterated the annual return, with the share price now down 5.4% over that longer period.

After such a large drop in price, Identiv may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.2x, since almost half of all companies in the Electronic industry in the United States have P/S ratios greater than 1.8x and even P/S higher than 5x 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 Identiv's Recent Performance Look Like?

Identiv certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. 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.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 3.1% last year. The latest three year period has also seen an excellent 34% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 3.2% per year as estimated by the four analysts watching the company. With the industry predicted to deliver 9.1% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Identiv's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

The southerly movements of Identiv's shares means its P/S is now sitting at a pretty low level. 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.

As we suspected, our examination of Identiv's analyst forecasts revealed that its inferior revenue outlook is contributing 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.

It is also worth noting that we have found 2 warning signs for Identiv that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.