With a price-to-sales (or "P/S") ratio of 1.1x InVision Aktiengesellschaft (ETR:IVX) may be sending bullish signals at the moment, given that almost half of all the Software companies in Germany have P/S ratios greater than 2.4x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
See our latest analysis for InVision
What Does InVision's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, InVision 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 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 InVision will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For InVision?
InVision'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 5.1% gain to the company's revenues. The latest three year period has also seen a 17% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 11% per year over the next three years. That's shaping up to be materially higher than the 7.1% per annum growth forecast for the broader industry.
With this information, we find it odd that InVision is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Key Takeaway
We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
A look at InVision's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.
Before you settle on your opinion, we've discovered 1 warning sign for InVision that you should be aware of.