Raiz Invest Limited (ASX:RZI) shareholders won't be pleased to see that the share price has had a very rough month, dropping 37% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 30%, which is great even in a bull market.

Since its price has dipped substantially, Raiz Invest may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.3x, since almost half of all companies in the Capital Markets industry in Australia have P/S ratios greater than 4.8x and even P/S higher than 15x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Raiz Invest

How Raiz Invest Has Been Performing

Raiz Invest has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Raiz Invest will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Raiz Invest, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Raiz Invest's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 17%. As a result, it also grew revenue by 30% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 5.4%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that Raiz Invest is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Raiz Invest's P/S Mean For Investors?

Shares in Raiz Invest have plummeted and its P/S has followed suit. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We're very surprised to see Raiz Invest currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward 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.

It is also worth noting that we have found 1 warning sign for Raiz Invest that you need to take into consideration.

If you're unsure about the strength of Raiz Invest'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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