Little excitement about Stem, Inc. (NYSE:STEM) sales as shares plunge 51%

The Stem, Inc. (NYSE:STEM) has had a very poor year over the past month, falling a whopping 51%. For long-term shareholders, last month ended a year to forget, with the share price falling 91%.

With the price having fallen sharply, Stem’s price-to-sales (or “P/S”) ratio of 0.2 may be sending buy signals right now, considering that nearly half of all companies in the electrical industry in the United States have a P/S ratio of over 1.6x, and even P/S readings of over 4x are not uncommon. Still, we would have to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Stem

What does Stem’s P/S mean for shareholders?

Stem could be doing better, as its revenue has been declining recently while most other companies have seen positive revenue growth. It seems that many are assuming the poor revenue performance will continue, which has depressed the P/S ratio. If that is the case, existing shareholders are unlikely to be enthusiastic about the future direction of the share price.

Want to know how analysts see Stem’s future compared to the industry? In this case, our free Report is a good starting point.

Do the sales forecasts match the low P/S ratio?

A P/S ratio as low as Stem’s would only be truly comfortable if the company’s growth lagged behind the industry.

First, if we look back, the company’s revenue growth over the last year wasn’t exactly exciting, as it posted a disappointing 13% decline. Despite this, the company managed to deliver tremendous revenue growth over the last three years. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

According to analysts, sales are expected to grow by 32% per year over the next three years, significantly less than the 46% per year growth forecast for the industry as a whole.

With this information, we can see why Stem is trading at a lower price-to-earnings ratio than the industry average. It seems that most investors expect limited future growth and are only willing to pay a lower amount for the stock.

What does Stem’s P/S mean for investors?

Stem’s recent weakness in its share price has pushed its price-to-sales ratio back below that of other electronics companies. It is argued that the price-to-sales ratio is a poorer measure of value in certain industries, but can be a strong indicator of business sentiment.

We found that Stem maintains its low P/S ratio because its growth forecast is expected to be lower than that of the wider industry. Shareholder pessimism about the company’s revenue prospects appears to be the main reason for the low P/S ratio. Under these circumstances, it is difficult to imagine the share price rising much in the near future.

Before you form an opinion, we found out 5 Warning Signs for Stem (2 are important!) that you should know.

If you are looking for companies with solid earnings growth in the pastyou might want to see this free Collection of other companies with strong earnings growth and low P/E ratios.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.