Freelancer Limited (ASX:FLN) Not Flying Under The Radar

It's not a stretch to say that Freelancer Limited's (ASX:FLN) price-to-sales (or "P/S") ratio of 1.7x right now seems quite "middle-of-the-road" for companies in the Professional Services industry in Australia, where the median P/S ratio is around 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Freelancer

What Does Freelancer's Recent Performance Look Like?

Freelancer could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Freelancer.

How Is Freelancer's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Freelancer's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 9.0% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 8.9% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 6.7% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 7.9%, which is not materially different.

With this in mind, it makes sense that Freelancer's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Freelancer's P/S?

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 Freelancer's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Professional Services industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you take the next step, you should know about the 2 warning signs for Freelancer that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.