Whispir Limited's (ASX:WSP) Shares Bounce 34% But Its Business Still Trails The Industry

Whispir Limited (ASX:WSP) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 76% share price decline over the last year.

In spite of the firm bounce in price, Whispir's price-to-sales (or "P/S") ratio of 0.8x might still make it look like a strong buy right now compared to the wider Software industry in Australia, where around half of the companies have P/S ratios above 2.8x and even P/S above 7x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for Whispir

What Does Whispir's Recent Performance Look Like?

Whispir could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Whispir's Revenue Growth Trending?

In order to justify its P/S ratio, Whispir would need to produce anemic growth that's substantially trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.3%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 75% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 12% each year during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 21% per year growth forecast for the broader industry.

In light of this, it's understandable that Whispir's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Whispir's P/S Mean For Investors?

Whispir's recent share price jump still sees fails to bring its P/S alongside the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of Whispir'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. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 3 warning signs for Whispir (1 makes us a bit uncomfortable!) that you need to take into consideration.

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).

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.