A Piece Of The Puzzle Missing From SoundThinking, Inc.'s (NASDAQ:SSTI) Share Price
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 SoundThinking, Inc.'s (NASDAQ:SSTI) P/S ratio of 4.7x. 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.
See our latest analysis for SoundThinking
How Has SoundThinking Performed Recently?
With revenue growth that's superior to most other companies of late, SoundThinking has been doing relatively well. 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.
Keen to find out how analysts think SoundThinking's future stacks up against the industry? In that case, our free report is a great place to start.
How Is SoundThinking's Revenue Growth Trending?
There's an inherent assumption that a company should be matching the industry for P/S ratios like SoundThinking's to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 39%. The latest three year period has also seen an excellent 99% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 17% during the coming year according to the seven analysts following the company. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.
With this in consideration, we find it intriguing that SoundThinking's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.
The Bottom Line On SoundThinking's P/S
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.
Looking at SoundThinking's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.
Having said that, be aware SoundThinking is showing 2 warning signs in our investment analysis, you should know about.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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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