NowVertical Group Inc. (CVE:NOW) Not Doing Enough For Some Investors As Its Shares Slump 26%

The NowVertical Group Inc. (CVE:NOW) share price has fared very poorly over the last month, falling by a substantial 26%. The good news is that in the last year, the stock has shone bright like a diamond, gaining 123%.

Following the heavy fall in price, NowVertical Group's price-to-sales (or "P/S") ratio of 0.7x might make it look like a strong buy right now compared to the wider Software industry in Canada, where around half of the companies have P/S ratios above 3.4x and even P/S above 9x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for NowVertical Group

What Does NowVertical Group's Recent Performance Look Like?

NowVertical Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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 NowVertical Group.

Is There Any Revenue Growth Forecasted For NowVertical Group?

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

Retrospectively, the last year delivered a frustrating 20% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 226% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 12% during the coming year according to the two analysts following the company. That's shaping up to be materially lower than the 20% growth forecast for the broader industry.

With this in consideration, its clear as to why NowVertical Group'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 We Can Learn From NowVertical Group's P/S?

Shares in NowVertical Group have plummeted and its P/S has followed suit. 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 NowVertical Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for NowVertical Group that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.