What You Can Learn From Corero Network Security plc's (LON:CNS) P/S
With a median price-to-sales (or "P/S") ratio of close to 2.5x in the Software industry in the United Kingdom, you could be forgiven for feeling indifferent about Corero Network Security plc's (LON:CNS) P/S ratio of 2.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
See our latest analysis for Corero Network Security
What Does Corero Network Security's Recent Performance Look Like?
With revenue growth that's inferior to most other companies of late, Corero Network Security has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Corero Network Security will help you uncover what's on the horizon.
How Is Corero Network Security's Revenue Growth Trending?
In order to justify its P/S ratio, Corero Network Security would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Although pleasingly revenue has lifted 86% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.
Looking ahead now, revenue is anticipated to climb by 9.8% per annum during the coming three years according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 9.6% each year, which is not materially different.
With this in mind, it makes sense that Corero Network Security's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.
The Key Takeaway
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Our look at Corero Network Security's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.
Plus, you should also learn about these 3 warning signs we've spotted with Corero Network Security.
If you're unsure about the strength of Corero Network Security's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
