Twin Vee Powercats Co. (NASDAQ:VEEE) shares have had a horrible month, losing 27% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 72% share price decline.

Since its price has dipped substantially, it would be understandable if you think Twin Vee Powercats is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in the United States' Leisure industry have P/S ratios above 1x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Twin Vee Powercats' P/S Mean For Shareholders?

For example, consider that Twin Vee Powercats' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Twin Vee Powercats would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 38% decrease to the company's top line. Even so, admirably revenue has lifted 42% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is only predicted to deliver 0.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Twin Vee Powercats' P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Twin Vee Powercats' P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Twin Vee Powercats revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Twin Vee Powercats (of which 3 are a bit concerning!) you should know about.

If you're unsure about the strength of Twin Vee Powercats' 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.