Yahoo Finance Lumen Technologies, Inc. (NYSE:LUMN) Shares Fly 34% But Investors Aren't Buying For Growth
Lumen Technologies, Inc. (NYSE:LUMN) shares have had a really impressive month, gaining 34% after a shaky period beforehand. But the last month did very little to improve the 66% share price decline over the last year.
Although its price has surged higher, Lumen Technologies' price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Telecom industry in the United States, where around half of the companies have P/S ratios above 1.1x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Lumen Technologies
What Does Lumen Technologies' P/S Mean For Shareholders?
Lumen Technologies could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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.
Keen to find out how analysts think Lumen Technologies' future stacks up against the industry? In that case, our free report is a great place to start.
Is There Any Revenue Growth Forecasted For Lumen Technologies?
Lumen Technologies' 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, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 20%. This means it has also seen a slide in revenue over the longer-term as revenue is down 29% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the eleven analysts covering the company suggest revenue growth is heading into negative territory, declining 3.7% per annum over the next three years. With the industry predicted to deliver 1.7% growth per annum, that's a disappointing outcome.
With this information, we are not surprised that Lumen Technologies is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What Does Lumen Technologies' P/S Mean For Investors?
Lumen Technologies' stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
It's clear to see that Lumen Technologies 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 there's material change, it's hard to envision a situation where the stock price will rise drastically.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Lumen Technologies (1 doesn't sit too well with us) 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.
