CM.com N.V.'s (AMS:CMCOM) Shareholders Might Be Looking For Exit
There wouldn't be many who think CM.com N.V.'s (AMS:CMCOM) price-to-sales (or "P/S") ratio of 0.9x is worth a mention when the median P/S for the Software industry in the Netherlands is similar at about 1.4x. 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 CM.com
How Has CM.com Performed Recently?
CM.com could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on CM.com.
Do Revenue Forecasts Match The P/S Ratio?
The only time you'd be comfortable seeing a P/S like CM.com's is when the company's growth is tracking the industry closely.
Retrospectively, the last year delivered a decent 9.1% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 159% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 6.7% per year as estimated by the three analysts watching the company. With the industry predicted to deliver 8.9% growth per year, the company is positioned for a weaker revenue result.
With this in mind, we find it intriguing that CM.com's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. 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 Key Takeaway
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.
Given that CM.com's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.
We don't want to rain on the parade too much, but we did also find 1 warning sign for CM.com that you need to be mindful of.
If these risks are making you reconsider your opinion on CM.com, explore our interactive list of high quality stocks to get an idea of what else is out there.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
