Cannae Holdings, Inc. (NYSE:CNNE) Investors Are Less Pessimistic Than Expected
It's not a stretch to say that Cannae Holdings, Inc.'s (NYSE:CNNE) price-to-sales (or "P/S") ratio of 2.3x right now seems quite "middle-of-the-road" for companies in the Diversified Financial industry in the United States, where the median P/S ratio is around 2.5x. 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.
View our latest analysis for Cannae Holdings
How Has Cannae Holdings Performed Recently?
While the industry has experienced revenue growth lately, Cannae Holdings' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.
Keen to find out how analysts think Cannae Holdings' future stacks up against the industry? In that case, our free report is a great place to start.
Is There Some Revenue Growth Forecasted For Cannae Holdings?
Cannae Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 13% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Turning to the outlook, the next year should generate growth of 0.7% as estimated by the three analysts watching the company. With the industry predicted to deliver 5.1% growth, the company is positioned for a weaker revenue result.
In light of this, it's curious that Cannae Holdings' P/S sits in line with the majority of other companies. 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 Bottom Line On Cannae Holdings' P/S
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.
When you consider that Cannae Holdings' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. 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.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Cannae Holdings with six simple checks.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
