Spindox S.p.A.'s (BIT:SPN) Price Is Out Of Tune With Revenues

With a median price-to-sales (or "P/S") ratio of close to 0.9x in the IT industry in Italy, you could be forgiven for feeling indifferent about Spindox S.p.A.'s (BIT:SPN) P/S ratio of 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Check out our latest analysis for Spindox

What Does Spindox's Recent Performance Look Like?

Recent revenue growth for Spindox has been in line with the industry. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. Those who are bullish on Spindox will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

Want the full picture on analyst estimates for the company? Then our free report on Spindox will help you uncover what's on the horizon.

How Is Spindox's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Spindox's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. The latest three year period has also seen an excellent 57% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 11% each year over the next three years. That's shaping up to be materially lower than the 28% per annum growth forecast for the broader industry.

With this in mind, we find it intriguing that Spindox's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given that Spindox's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Before you take the next step, you should know about the 1 warning sign for Spindox that we have uncovered.

If you're unsure about the strength of Spindox's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.