ON24, Inc.'s (NYSE:ONTF) Business And Shares Still Trailing The Industry
You may think that with a price-to-sales (or "P/S") ratio of 2.2x ON24, Inc. (NYSE:ONTF) is definitely a stock worth checking out, seeing as almost half of all the Software companies in the United States have P/S ratios greater than 4.3x and even P/S above 10x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
See our latest analysis for ON24
How ON24 Has Been Performing
While the industry has experienced revenue growth lately, ON24's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on ON24.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, ON24 would need to produce anemic growth that's substantially trailing the industry.
Retrospectively, the last year delivered a frustrating 6.3% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 114% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.
Shifting to the future, estimates from the seven analysts covering the company suggest revenue growth is heading into negative territory, declining 13% over the next year. With the industry predicted to deliver 12% growth, that's a disappointing outcome.
With this in consideration, we find it intriguing that ON24's P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Bottom Line On ON24's P/S
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.
It's clear to see that ON24 maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
You always need to take note of risks, for example - ON24 has 1 warning sign we think you should be aware 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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