SenSen Networks Limited (ASX:SNS) Stock Catapults 33% Though Its Price And Business Still Lag The Industry

SenSen Networks Limited (ASX:SNS) shareholders have had their patience rewarded with a 33% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.8% in the last twelve months.

Although its price has surged higher, SenSen Networks may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.1x, considering almost half of all companies in the Software industry in Australia have P/S ratios greater than 3.2x and even P/S higher than 10x 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.

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Check out our latest analysis for SenSen Networks

What Does SenSen Networks' Recent Performance Look Like?

Revenue has risen firmly for SenSen Networks recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for SenSen Networks, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is SenSen Networks' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. The latest three year period has also seen an excellent 68% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is predicted to deliver 40% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why SenSen Networks' P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does SenSen Networks' P/S Mean For Investors?

The latest share price surge wasn't enough to lift SenSen Networks' P/S close to the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

In line with expectations, SenSen Networks maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for SenSen Networks you should be aware of, and 1 of them is concerning.

If these risks are making you reconsider your opinion on SenSen Networks, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.