Box, Inc.'s (NYSE:BOX) Business Is Yet to Catch Up With Its Share Price
With a median price-to-sales (or "P/S") ratio of close to 4.4x in the Software industry in the United States, you could be forgiven for feeling indifferent about Box, Inc.'s (NYSE:BOX) P/S ratio of 3.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Check out our latest analysis for Box
What Does Box's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, Box has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Box will help you uncover what's on the horizon.
Is There Some Revenue Growth Forecasted For Box?
In order to justify its P/S ratio, Box would need to produce growth that's similar to the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 6.6%. This was backed up an excellent period prior to see revenue up by 37% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 6.6% each year as estimated by the twelve analysts watching the company. That's shaping up to be materially lower than the 17% each year growth forecast for the broader industry.
With this information, we find it interesting that Box is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
The Final Word
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.
Our look at the analysts forecasts of Box's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Box (1 shouldn't be ignored) you should be aware of.
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.
