Investors Still Aren't Entirely Convinced By Abra Information Technologies Ltd.'s (TLV:ABRA) Revenues Despite 28% Price Jump

Abra Information Technologies Ltd. (TLV:ABRA) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 19% over that time.

In spite of the firm bounce in price, Abra Information Technologies may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Software industry in Israel have P/S ratios greater than 1.9x and even P/S higher than 5x 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.

View our latest analysis for Abra Information Technologies

What Does Abra Information Technologies' P/S Mean For Shareholders?

Revenue has risen firmly for Abra Information Technologies recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Abra Information Technologies will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Abra Information Technologies' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Abra Information Technologies?

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

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 30% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Abra Information Technologies' P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Despite Abra Information Technologies' share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We're very surprised to see Abra Information Technologies currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You always need to take note of risks, for example - Abra Information Technologies has 2 warning signs we think 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.