Stock Analysis

Alarum Technologies Ltd.'s (TLV:ALAR) 35% Jump Shows Its Popularity With Investors

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Alarum Technologies Ltd. (TLV:ALAR) shares have continued their recent momentum with a 35% gain in the last month alone. The last 30 days were the cherry on top of the stock's 1,381% gain in the last year, which is nothing short of spectacular.

After such a large jump in price, Alarum Technologies' price-to-sales (or "P/S") ratio of 7x might make it look like a strong sell right now compared to other companies in the Software industry in Israel, where around half of the companies have P/S ratios below 4.2x and even P/S below 0.8x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Alarum Technologies

TASE:ALAR Price to Sales Ratio vs Industry May 22nd 2024

What Does Alarum Technologies' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Alarum Technologies has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Alarum Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Alarum Technologies?

In order to justify its P/S ratio, Alarum Technologies would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 43% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 38% as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

In light of this, it's understandable that Alarum Technologies' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Alarum Technologies' P/S

The strong share price surge has lead to Alarum Technologies' P/S soaring as well. 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.

Our look into Alarum Technologies shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Alarum Technologies 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.

Valuation is complex, but we're helping make it simple.

Find out whether Alarum Technologies is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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.