Yahoo Finance Array Technologies, Inc.'s (NASDAQ:ARRY) 25% Price Boost Is Out Of Tune With Revenues
Array Technologies, Inc. (NASDAQ:ARRY) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. The annual gain comes to 151% following the latest surge, making investors sit up and take notice.
In spite of the firm bounce in price, there still wouldn't be many who think Array Technologies' price-to-sales (or "P/S") ratio of 2x is worth a mention when the median P/S in the United States' Electrical industry is similar at about 1.8x. 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.
Check out our latest analysis for Array Technologies
What Does Array Technologies' Recent Performance Look Like?
Array Technologies certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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.
Want the full picture on analyst estimates for the company? Then our free report on Array Technologies will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The P/S?
In order to justify its P/S ratio, Array Technologies would need to produce growth that's similar to the industry.
Taking a look back first, we see that the company grew revenue by an impressive 92% last year. The strong recent performance means it was also able to grow revenue by 153% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 17% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 33% each year, which is noticeably more attractive.
In light of this, it's curious that Array Technologies' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
What Does Array Technologies' P/S Mean For Investors?
Its shares have lifted substantially and now Array Technologies' P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Our look at the analysts forecasts of Array Technologies' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Array Technologies with six simple checks on some of these key factors.
If you're unsure about the strength of Array Technologies' 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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
