Unifi, Inc. (NYSE:UFI) Might Not Be As Mispriced As It Looks After Plunging 25%
The Unifi, Inc. (NYSE:UFI) share price has fared very poorly over the last month, falling by a substantial 25%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 40% share price drop.
After such a large drop in price, Unifi may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.1x, considering almost half of all companies in the Luxury industry in the United States have P/S ratios greater than 0.7x and even P/S higher than 3x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
See our latest analysis for Unifi
How Unifi Has Been Performing
Unifi hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Unifi.Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, Unifi would need to produce sluggish growth that's trailing the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.2%. This means it has also seen a slide in revenue over the longer-term as revenue is down 30% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 7.7% over the next year. That's shaping up to be materially higher than the 5.4% growth forecast for the broader industry.
In light of this, it's peculiar that Unifi's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Key Takeaway
The southerly movements of Unifi's shares means its P/S is now sitting at a pretty low level. 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.
A look at Unifi's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.
You should always think about risks. Case in point, we've spotted 1 warning sign for Unifi you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.