Heidrick & Struggles International, Inc.'s (NASDAQ:HSII) Business Is Trailing The Industry But Its Shares Aren't

It's not a stretch to say that Heidrick & Struggles International, Inc.'s (NASDAQ:HSII) price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" for companies in the Professional Services industry in the United States, where the median P/S ratio is around 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Heidrick & Struggles International

What Does Heidrick & Struggles International's P/S Mean For Shareholders?

Recent times haven't been great for Heidrick & Struggles International as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Heidrick & Struggles International?

In order to justify its P/S ratio, Heidrick & Struggles International would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 6.1%. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 2.7% as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 7.4% growth forecast for the broader industry.

With this information, we find it interesting that Heidrick & Struggles International is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

When you consider that Heidrick & Struggles International's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Heidrick & Struggles International you should know about.

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

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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.