Investors Still Aren't Entirely Convinced By Serviceware SE's (ETR:SJJ) Revenues Despite 31% Price Jump
Serviceware SE (ETR:SJJ) shareholders have had their patience rewarded with a 31% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 72%.
Even after such a large jump in price, Serviceware's price-to-sales (or "P/S") ratio of 1.4x might still make it look like a buy right now compared to the Software industry in Germany, where around half of the companies have P/S ratios above 2x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
Check out our latest analysis for Serviceware
How Serviceware Has Been Performing
Recent revenue growth for Serviceware has been in line with the industry. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Serviceware will be hoping that this isn't the case.
Want the full picture on analyst estimates for the company? Then our free report on Serviceware will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
Serviceware's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Retrospectively, the last year delivered a decent 8.6% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 25% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 8.5% per year as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 7.9% each year, which is not materially different.
With this in consideration, we find it intriguing that Serviceware's P/S is lagging behind its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
What Does Serviceware's P/S Mean For Investors?
Serviceware's stock price has surged recently, but its but its P/S still remains modest. 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 examination of Serviceware's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.
The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Serviceware with six simple checks on some of these key factors.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.