Revenues Not Telling The Story For Pivotree Inc. (CVE:PVT) After Shares Rise 33%

Pivotree Inc. (CVE:PVT) shareholders are no doubt pleased to see that the share price has bounced 33% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 33% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Pivotree's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the IT industry in Canada is also close to 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Pivotree

What Does Pivotree's Recent Performance Look Like?

Pivotree could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Pivotree's Revenue Growth Trending?

In order to justify its P/S ratio, Pivotree would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. Still, the latest three year period has seen an excellent 31% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 4.5% as estimated by the four analysts watching the company. That's not great when the rest of the industry is expected to grow by 11%.

In light of this, it's somewhat alarming that Pivotree's P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What We Can Learn From Pivotree's P/S?

Pivotree appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

It appears that Pivotree currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

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

If you're unsure about the strength of Pivotree'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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