Improved Revenues Required Before Electrovaya Inc. (TSE:ELVA) Stock's 66% Jump Looks Justified

Electrovaya Inc. (TSE:ELVA) shareholders would be excited to see that the share price has had a great month, posting a 66% gain and recovering from prior weakness. The last month tops off a massive increase of 193% in the last year.

Although its price has surged higher, Electrovaya may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 5.9x, considering almost half of all companies in the Electrical industry in Canada have P/S ratios greater than 30.6x and even P/S higher than 49x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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View our latest analysis for Electrovaya

What Does Electrovaya's Recent Performance Look Like?

Recent times haven't been great for Electrovaya as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Electrovaya will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

Electrovaya's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 43%. The strong recent performance means it was also able to grow revenue by 292% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 39% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 177% per annum, which is noticeably more attractive.

With this information, we can see why Electrovaya is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Even after such a strong price move, Electrovaya's P/S still trails the rest of the industry. 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 expected, our analysis of Electrovaya's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Electrovaya (1 can't be ignored!) that you need to be mindful of.

If you're unsure about the strength of Electrovaya's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.