Yahoo Finance Rackspace Technology, Inc.'s (NASDAQ:RXT) Shares Lagging The Industry But So Is The Business
With a price-to-sales (or "P/S") ratio of 0.2x Rackspace Technology, Inc. (NASDAQ:RXT) may be sending bullish signals at the moment, given that almost half of all the IT companies in the United States have P/S ratios greater than 1.5x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Rackspace Technology
How Rackspace Technology Has Been Performing
With revenue growth that's inferior to most other companies of late, Rackspace Technology has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could 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 Rackspace Technology.
Do Revenue Forecasts Match The Low P/S Ratio?
Rackspace Technology'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.
If we review the last year of revenue growth, the company posted a worthy increase of 3.7%. The solid recent performance means it was also able to grow revenue by 28% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 1.1% each year as estimated by the nine analysts watching the company. With the industry predicted to deliver 14% growth per annum, the company is positioned for a weaker revenue result.
In light of this, it's understandable that Rackspace Technology's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What We Can Learn From Rackspace Technology's P/S?
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.
As expected, our analysis of Rackspace Technology's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.
It is also worth noting that we have found 2 warning signs for Rackspace Technology that you need to take into consideration.
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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