Some Confidence Is Lacking In Box, Inc.'s (NYSE:BOX) P/S
With a median price-to-sales (or "P/S") ratio of close to 4.3x 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 4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for Box
What Does Box's Recent Performance Look Like?
Recent times haven't been great for Box as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
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.
How Is Box's Revenue Growth Trending?
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 13%. This was backed up an excellent period prior to see revenue up by 42% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 9.9% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 13% per annum, which is noticeably more attractive.
With this in mind, we find it intriguing that Box's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
The Final Word
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.
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.
Before you settle on your opinion, we've discovered 2 warning signs for Box (1 is a bit concerning!) that 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.
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.
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