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華爾街日報Market Cool On Canaan Inc.'s (NASDAQ:CAN) Revenues Pushing Shares 28% Lower
To the annoyance of some shareholders, Canaan Inc. (NASDAQ:CAN) shares are down a considerable 28% 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 70% share price decline.
Even after such a large drop in price, you could still be forgiven for feeling indifferent about Canaan's P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Tech industry in the United States is also close to 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
See our latest analysis for Canaan
What Does Canaan's P/S Mean For Shareholders?
Canaan certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. 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 not quite in favour.
Keen to find out how analysts think Canaan's future stacks up against the industry? In that case, our free report is a great place to start.Is There Some Revenue Growth Forecasted For Canaan?
The only time you'd be comfortable seeing a P/S like Canaan's is when the company's growth is tracking the industry closely.
If we review the last year of revenue growth, the company posted a terrific increase of 84%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 51% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.
Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 58% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 10%, which is noticeably less attractive.
In light of this, it's curious that Canaan's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Key Takeaway
With its share price dropping off a cliff, the P/S for Canaan looks to be in line with the rest of the Tech industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Despite enticing revenue growth figures that outpace the industry, Canaan's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Canaan you should know about.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.