Yahoo Finance Getting In Cheap On Vuzix Corporation (NASDAQ:VUZI) Might Be Difficult
When you see that almost half of the companies in the Consumer Durables industry in the United States have price-to-sales ratios (or "P/S") below 0.6x, Vuzix Corporation (NASDAQ:VUZI) looks to be giving off strong sell signals with its 22.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
See our latest analysis for Vuzix
What Does Vuzix's Recent Performance Look Like?
Vuzix could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying to much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Vuzix will help you uncover what's on the horizon.
Is There Enough Revenue Growth Forecasted For Vuzix?
Vuzix's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. Still, the latest three year period has seen an excellent 77% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.
Looking ahead now, revenue is anticipated to remain buoyant, climbing by 51% during the coming year according to the three analysts following the company. That would be an excellent outcome when the industry is expected to decline by 11%.
With this in consideration, we understand why Vuzix's P/S is a cut above its industry peers. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader industry going backwards.
The Key Takeaway
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
As we anticipated, our review of Vuzix's analyst forecasts shows that the company's better revenue forecast compared to a turbulent industry is a significant contributor to its high price-to-sales ratio. Outperforming the industry in this manner looks to have provided investors with a bit of confidence that the future will be bright, bolstering the P/S. Our only concern is whether its revenue trajectory can keep outperforming under these tough industry conditions. Assuming the company's outlook remains unchanged, the share price is likely to be supported by prospective buyers.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Vuzix that you should be aware of.
If you're unsure about the strength of Vuzix's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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.
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