Lacklustre Performance Is Driving Credit Clear Limited's (ASX:CCR) Low P/S

You may think that with a price-to-sales (or "P/S") ratio of 2.2x Credit Clear Limited (ASX:CCR) is a stock worth checking out, seeing as almost half of all the Software companies in Australia have P/S ratios greater than 2.7x and even P/S higher than 7x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

See our latest analysis for Credit Clear

How Has Credit Clear Performed Recently?

There hasn't been much to differentiate Credit Clear's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

Keen to find out how analysts think Credit Clear's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The latest three year period has also seen an excellent 256% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 13% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 20% each year, which is noticeably more attractive.

With this in consideration, its clear as to why Credit Clear's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Credit Clear'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.

As expected, our analysis of Credit Clear's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Credit Clear you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.