Revenues Working Against Alarum Technologies Ltd.'s (TLV:ALAR) Share Price Following 29% Dive

Alarum Technologies Ltd. (TLV:ALAR) shares have had a horrible month, losing 29% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 87% in the last year.

Following the heavy fall in price, Alarum Technologies' price-to-sales (or "P/S") ratio of 2.4x might make it look like a buy right now compared to the Software industry in Israel, where around half of the companies have P/S ratios above 3.3x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Alarum Technologies

How Alarum Technologies Has Been Performing

Recent times have been advantageous for Alarum Technologies as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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.

Do Revenue Forecasts Match The Low P/S Ratio?

Alarum Technologies' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 29%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 15% as estimated by the three analysts watching the company. With the industry predicted to deliver 24% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Alarum Technologies' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

The southerly movements of Alarum Technologies' shares means its P/S is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Alarum Technologies maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for Alarum Technologies (1 is a bit unpleasant!) that we have uncovered.

If these risks are making you reconsider your opinion on Alarum 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.