DLH Holdings Corp.'s (NASDAQ:DLHC) Price Is Right But Growth Is Lacking

When close to half the companies operating in the Professional Services industry in the United States have price-to-sales ratios (or "P/S") above 1.3x, you may consider DLH Holdings Corp. (NASDAQ:DLHC) as an attractive investment with its 0.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for DLH Holdings

How DLH Holdings Has Been Performing

With revenue growth that's superior to most other companies of late, DLH Holdings has been doing relatively well. 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.

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

How Is DLH Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, DLH Holdings would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 27%. The strong recent performance means it was also able to grow revenue by 87% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 3.0% over the next year. That's shaping up to be materially lower than the 6.3% growth forecast for the broader industry.

In light of this, it's understandable that DLH Holdings' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On DLH Holdings' P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of DLH Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - DLH Holdings has 5 warning signs (and 1 which can't be ignored) we think you should know about.

If these risks are making you reconsider your opinion on DLH Holdings, 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.