Shareholders Should Be Pleased With Lightspeed Commerce Inc.'s (TSE:LSPD) Price

There wouldn't be many who think Lightspeed Commerce Inc.'s (TSE:LSPD) price-to-sales (or "P/S") ratio of 3.1x is worth a mention when the median P/S for the Software industry in Canada is similar at about 3.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Lightspeed Commerce

How Has Lightspeed Commerce Performed Recently?

Recent times have been advantageous for Lightspeed Commerce as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Lightspeed Commerce would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 43% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue 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 24% per annum over the next three years. With the industry predicted to deliver 24% growth per annum, the company is positioned for a comparable revenue result.

With this information, we can see why Lightspeed Commerce is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What Does Lightspeed Commerce's P/S Mean For Investors?

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.

We've seen that Lightspeed Commerce maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

You always need to take note of risks, for example - Lightspeed Commerce has 1 warning sign we think you should be aware of.

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

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.