Knightscope, Inc.'s (NASDAQ:KSCP) 35% Cheaper Price Remains In Tune With Revenues

Knightscope, Inc. (NASDAQ:KSCP) shares have retraced a considerable 35% in the last month, reversing a fair amount of their solid recent performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 60% loss during that time.

Although its price has dipped substantially, given around half the companies in the United States' Commercial Services industry have price-to-sales ratios (or "P/S") below 1.1x, you may still consider Knightscope as a stock to avoid entirely with its 7.9x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Knightscope

How Has Knightscope Performed Recently?

With revenue growth that's superior to most other companies of late, Knightscope has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Knightscope?

The only time you'd be truly comfortable seeing a P/S as steep as Knightscope's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 180%. The latest three year period has also seen an excellent 234% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 50% as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 11% growth forecast for the broader industry.

With this information, we can see why Knightscope is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

A significant share price dive has done very little to deflate Knightscope's very lofty P/S. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Knightscope's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 5 warning signs for Knightscope (3 are a bit concerning!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.