To the annoyance of some shareholders, Tigo Energy, Inc. (NASDAQ:TYGO) shares are down a considerable 25% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 90% share price decline.
Following the heavy fall in price, Tigo Energy's price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Electrical industry in the United States, where around half of the companies have P/S ratios above 1.8x and even P/S above 4x 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:TYGO Price to Sales Ratio vs Industry April 6th 2024
How Has Tigo Energy Performed Recently?
With revenue growth that's superior to most other companies of late, Tigo Energy 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.
Keen to find out how analysts think Tigo Energy's future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, Tigo Energy would need to produce sluggish growth that's trailing the industry.
Retrospectively, the last year delivered an exceptional 79% 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.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 4.8% per year over the next three years. With the industry predicted to deliver 37% growth per year, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why Tigo Energy's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What Does Tigo Energy's P/S Mean For Investors?
The southerly movements of Tigo Energy's shares means its P/S is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of Tigo Energy's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
We don't want to rain on the parade too much, but we did also find 6 warning signs for Tigo Energy (1 is a bit concerning!) that you need to be mindful of.
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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