Ribbon Communications Inc.'s (NASDAQ:RBBN) Shares Lagging The Industry But So Is The Business
When close to half the companies operating in the Communications industry in the United States have price-to-sales ratios (or "P/S") above 1.2x, you may consider Ribbon Communications Inc. (NASDAQ:RBBN) as an attractive investment with its 0.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
View our latest analysis for Ribbon Communications
What Does Ribbon Communications' P/S Mean For Shareholders?
Recent times haven't been great for Ribbon Communications as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Ribbon Communications will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For Ribbon Communications?
Ribbon Communications' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Although pleasingly revenue has lifted 38% in aggregate from three years ago, notwithstanding the last 12 months. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.
Turning to the outlook, the next year should generate growth of 4.9% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 8.5%, which is noticeably more attractive.
In light of this, it's understandable that Ribbon Communications' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
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.
We've established that Ribbon Communications maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
Before you take the next step, you should know about the 3 warning signs for Ribbon Communications (1 is a bit concerning!) that we have uncovered.
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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