Take Care Before Jumping Onto Sphere 3D Corp. (NASDAQ:ANY) Even Though It's 25% Cheaper
Sphere 3D Corp. (NASDAQ:ANY) shares have had a horrible month, losing 25% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 66% share price decline.
Following the heavy fall in price, Sphere 3D's price-to-sales (or "P/S") ratio of 1.9x might make it look like a strong buy right now compared to the wider Software industry in the United States, where around half of the companies have P/S ratios above 4.7x and even P/S above 10x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.
View our latest analysis for Sphere 3D
How Sphere 3D Has Been Performing
Sphere 3D certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sphere 3D's earnings, revenue and cash flow.
Is There Any Revenue Growth Forecasted For Sphere 3D?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like Sphere 3D's to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 118% last year. The latest three year period has also seen an excellent 157% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
When compared to the industry's one-year growth forecast of 13%, the most recent medium-term revenue trajectory is noticeably more alluring
In light of this, it's peculiar that Sphere 3D's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Final Word
Sphere 3D's P/S looks about as weak as its stock price lately. 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.
We're very surprised to see Sphere 3D currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
It is also worth noting that we have found 4 warning signs for Sphere 3D (1 can't be ignored!) that you need to take into consideration.
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.
