Those holding Tigo Energy, Inc. (NASDAQ:TYGO) shares would be relieved that the share price has rebounded 32% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 80% share price decline over the last year.

Even after such a large jump in price, Tigo Energy may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Electrical industry in the United States have P/S ratios greater than 1.7x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Tigo Energy's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Tigo Energy has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

How Is Tigo Energy's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 79%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 49% during the coming year according to the three analysts following the company. That's not great when the rest of the industry is expected to grow by 16%.

With this in consideration, we find it intriguing that Tigo Energy's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Tigo Energy's P/S?

Despite Tigo Energy's share price climbing recently, its P/S still lags most other companies. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Tigo Energy's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Tigo Energy's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

You need to take note of risks, for example - Tigo Energy has 6 warning signs (and 2 which are potentially serious) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.