LifeSpeak Inc.'s (TSE:LSPK) Prospects Need A Boost To Lift Shares

LifeSpeak Inc.'s (TSE:LSPK) price-to-sales (or "P/S") ratio of 0.5x might make it look like a strong buy right now compared to the Software industry in Canada, where around half of the companies have P/S ratios above 3.6x and even P/S above 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for LifeSpeak

How Has LifeSpeak Performed Recently?

With revenue growth that's superior to most other companies of late, LifeSpeak has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For LifeSpeak?

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

Taking a look back first, we see that the company grew revenue by an impressive 32% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 1.1% during the coming year according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 19%, which is noticeably more attractive.

With this in consideration, its clear as to why LifeSpeak's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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

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.

We've established that LifeSpeak maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for LifeSpeak that you need to be mindful of.

If you're unsure about the strength of LifeSpeak's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.