Optiva Inc.'s (TSE:OPT) Price Is Right But Growth Is Lacking

With a price-to-sales (or "P/S") ratio of 0.3x Optiva Inc. (TSE:OPT) may be sending very bullish signals at the moment, given that almost half of all the Software companies in Canada have P/S ratios greater than 3.4x and even P/S higher than 8x are not unusual. 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 Optiva

How Has Optiva Performed Recently?

Optiva hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Optiva's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Optiva's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 6.8% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 30% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 5.1% over the next year. With the industry predicted to deliver 19% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Optiva's P/S sits below the majority of other companies. 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 Optiva's P/S Mean For Investors?

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 we suspected, our examination of Optiva's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Optiva you should be aware of, and 1 of them is significant.

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

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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.