Optical Cable Corporation (NASDAQ:OCC) shareholders have had their patience rewarded with a 28% share price jump in the last month.    Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 23% in the last twelve months.  

In spite of the firm bounce in price, when close to half the companies operating in the United States' Communications industry have price-to-sales ratios (or "P/S") above 1.2x, you may still consider Optical Cable as an enticing stock to check out with its 0.4x P/S ratio.   Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.  

NasdaqGM:OCC Price to Sales Ratio vs Industry March 5th 2024

What Does Optical Cable's P/S Mean For Shareholders?

Optical Cable has been doing a decent job lately as it's been growing revenue at a reasonable pace.   One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future.  Those who are bullish on Optical Cable will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.    

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Optical Cable's earnings, revenue and cash flow.  

Is There Any Revenue Growth Forecasted For Optical Cable?  

The only time you'd be truly comfortable seeing a P/S as low as Optical Cable's is when the company's growth is on track to lag the industry.  

Retrospectively, the last year delivered a decent 4.5% gain to the company's revenues.   Pleasingly, revenue has also lifted 31% in aggregate from three years ago, partly thanks to the last 12 months of growth.  Therefore, it's fair to say the revenue growth recently has been superb for the company.  

In contrast to the company, the rest of the industry is expected to decline by 0.1% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this information, we find it very odd that Optical Cable is trading at a P/S lower than the industry.  It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader industry.  

What We Can Learn From Optical Cable's P/S?

Optical Cable's stock price has surged recently, but its but its P/S still remains modest.      Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Looking at the figures, it's surprising to see Optical Cable currently trades on a much lower than expected P/S since its recent three-year revenue growth is beating forecasts for a struggling industry.  One assumption would be that there are some underlying risks to revenue that are keeping the P/S from rising to match the its strong performance.  Amidst challenging industry conditions, perhaps a key concern is whether the company can sustain its superior revenue growth trajectory.  At least the risk of a price drop looks to be subdued, but investors think future revenue could see a lot of volatility.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Optical Cable that you need to be mindful of.  

If you're unsure about the strength of Optical Cable'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.