Market Still Lacking Some Conviction On Freelancer Limited (ASX:FLN)

There wouldn't be many who think Freelancer Limited's (ASX:FLN) price-to-sales (or "P/S") ratio of 1.8x is worth a mention when the median P/S for the Professional Services industry in Australia is similar at about 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Freelancer

How Has Freelancer Performed Recently?

While the industry has experienced revenue growth lately, Freelancer's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Freelancer will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Freelancer?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Freelancer's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 4.2% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 9.3% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 6.1% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 3.8%, which is noticeably less attractive.

In light of this, it's curious that Freelancer's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Freelancer's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Looking at Freelancer's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Freelancer you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.