Optimistic Investors Push Cimpress plc (NASDAQ:CMPR) Shares Up 28% But Growth Is Lacking

The Cimpress plc (NASDAQ:CMPR) share price has done very well over the last month, posting an excellent gain of 28%. The annual gain comes to 152% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Cimpress' P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in the United States is also close to 1.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Cimpress

How Cimpress Has Been Performing

Recent times haven't been great for Cimpress as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Cimpress' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 9.6%. This was backed up an excellent period prior to see revenue up by 34% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 6.1% per annum during the coming three years according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 20% per annum, which is noticeably more attractive.

In light of this, it's curious that Cimpress' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Cimpress' P/S Mean For Investors?

Its shares have lifted substantially and now Cimpress' P/S is back within range of the industry median. 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.

Our look at the analysts forecasts of Cimpress' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Having said that, be aware Cimpress is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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.