WiseTech Global Limited's (ASX:WTC) Stock Retreats 27% But Revenues Haven't Escaped The Attention Of Investors

The WiseTech Global Limited (ASX:WTC) share price has fared very poorly over the last month, falling by a substantial 27%. Longer-term shareholders would now have taken a real hit with the stock declining 5.1% in the last year.

In spite of the heavy fall in price, given around half the companies in Australia's Software industry have price-to-sales ratios (or "P/S") below 2.9x, you may still consider WiseTech Global as a stock to avoid entirely with its 26.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for WiseTech Global

How Has WiseTech Global Performed Recently?

With revenue growth that's inferior to most other companies of late, WiseTech Global has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very 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 WiseTech Global.

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

In order to justify its P/S ratio, WiseTech Global would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. Pleasingly, revenue has also lifted 75% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 26% per annum over the next three years. With the industry only predicted to deliver 20% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why WiseTech Global's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From WiseTech Global's P/S?

Even after such a strong price drop, WiseTech Global's P/S still exceeds the industry median significantly. 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 we suspected, our examination of WiseTech Global's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware WiseTech Global is showing 1 warning sign in our investment analysis, you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.