Fewer Investors Than Expected Jumping On Enfusion, Inc. (NYSE:ENFN)
With a median price-to-sales (or "P/S") ratio of close to 4.2x in the Software industry in the United States, you could be forgiven for feeling indifferent about Enfusion, Inc.'s (NYSE:ENFN) P/S ratio of 4.3x. 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 Enfusion
What Does Enfusion's P/S Mean For Shareholders?
Enfusion certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Want the full picture on analyst estimates for the company? Then our free report on Enfusion will help you uncover what's on the horizon.
Do Revenue Forecasts Match The P/S Ratio?
Enfusion's 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.
If we review the last year of revenue growth, the company posted a terrific increase of 35%. The latest three year period has also seen an excellent 155% 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.
Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 25% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 13% each year, which is noticeably less attractive.
In light of this, it's curious that Enfusion's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.
The Key Takeaway
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Despite enticing revenue growth figures that outpace the industry, Enfusion's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Enfusion that you need to be mindful of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
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