Wishpond Technologies Ltd.'s (CVE:WISH) Share Price Is Matching Sentiment Around Its Revenues

Wishpond Technologies Ltd.'s (CVE:WISH) price-to-sales (or "P/S") ratio of 0.6x might make it look like a strong buy right now compared to the Software industry in Canada, where around half of the companies have P/S ratios above 4.5x and even P/S above 11x 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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View our latest analysis for Wishpond Technologies

What Does Wishpond Technologies' Recent Performance Look Like?

Wishpond Technologies could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. 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.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 26%. As a result, revenue from three years ago have also fallen 1.1% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 1.1% during the coming year according to the two analysts following the company. Meanwhile, the broader industry is forecast to expand by 33%, which paints a poor picture.

In light of this, it's understandable that Wishpond Technologies' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Wishpond Technologies' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Wishpond Technologies' poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Wishpond Technologies is showing 3 warning signs in our investment analysis, and 2 of those are potentially serious.

If these risks are making you reconsider your opinion on Wishpond Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.