VerticalScope Holdings Inc. (TSE:FORA) Shares May Have Slumped 26% But Getting In Cheap Is Still Unlikely

VerticalScope Holdings Inc. (TSE:FORA) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Indeed, the recent drop has reduced its annual gain to a relatively sedate 8.2% over the last twelve months.

Even after such a large drop in price, given close to half the companies operating in Canada's Interactive Media and Services industry have price-to-sales ratios (or "P/S") below 1.2x, you may still consider VerticalScope Holdings as a stock to potentially avoid with its 2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for VerticalScope Holdings

What Does VerticalScope Holdings' Recent Performance Look Like?

Recent times haven't been great for VerticalScope Holdings as its revenue has been rising slower than most other companies. 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.

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

How Is VerticalScope Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as VerticalScope Holdings' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. Revenue has also lifted 5.0% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 7.1% per annum over the next three years. That's shaping up to be materially lower than the 12% per annum growth forecast for the broader industry.

In light of this, it's alarming that VerticalScope Holdings' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

Despite the recent share price weakness, VerticalScope Holdings' P/S remains higher than most other companies in the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for VerticalScope Holdings, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for VerticalScope Holdings that you need to be mindful of.

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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.