Q4 Inc. (TSE:QFOR) Stock Catapults 33% Though Its Price And Business Still Lag The Industry

Despite an already strong run, Q4 Inc. (TSE:QFOR) shares have been powering on, with a gain of 33% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

In spite of the firm bounce in price, Q4 may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.1x, since almost half of all companies in the Software industry in Canada have P/S ratios greater than 2.7x and even P/S higher than 9x 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 limited.

Check out our latest analysis for Q4

How Has Q4 Performed Recently?

Recent times haven't been great for Q4 as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Q4.

Is There Any Revenue Growth Forecasted For Q4?

The only time you'd be truly comfortable seeing a P/S as low as Q4's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. However, a few strong years before that means that it was still able to grow revenue by an impressive 150% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 17% per annum, which is noticeably more attractive.

In light of this, it's understandable that Q4'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 Q4's P/S Mean For Investors?

Q4's stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Q4 maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Q4 that you should be aware of.

If you're unsure about the strength of Q4'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.