NowVertical Group Inc. (CVE:NOW) Stock Catapults 39% Though Its Price And Business Still Lag The Industry

NowVertical Group Inc. (CVE:NOW) shareholders have had their patience rewarded with a 39% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 92%.

In spite of the firm bounce in price, NowVertical Group may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.7x, considering almost half of all companies in the Software industry in Canada have P/S ratios greater than 2.9x and even P/S higher than 8x aren't out of the ordinary. 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. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Is There Any Revenue Growth Forecasted For NowVertical Group?

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

Retrospectively, the last year delivered a frustrating 7.8% decrease to the company's top line. In spite of this, the company still managed to deliver immense revenue growth over the last three years. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 3.7% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 421% per annum, which is noticeably more attractive.

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.

The Final Word

Shares in NowVertical Group have risen appreciably however, its P/S is still subdued. 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.

As we suspected, our examination of NowVertical Group'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 1 warning sign for NowVertical Group you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.