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You may think that with a price-to-sales (or "P/S") ratio of 1x CM.com N.V. (AMS:CMCOM) is a stock worth checking out, seeing as almost half of all the Software companies in the Netherlands have P/S ratios greater than 2.4x and even P/S higher than 5x aren't out of the ordinary. 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 CM.com
What Does CM.com's Recent Performance Look Like?
Recent times have been advantageous for CM.com as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on CM.com will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For CM.com?
CM.com'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 terrific increase of 19%. Pleasingly, revenue has also lifted 194% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 8.6% per year growth forecast for the broader industry.
In light of this, it's peculiar that CM.com's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Final Word
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
To us, it seems CM.com currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.