Improved Revenues Required Before Willdan Group, Inc. (NASDAQ:WLDN) Stock's 26% Jump Looks Justified

Willdan Group, Inc. (NASDAQ:WLDN) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 51% in the last year.

Although its price has surged higher, Willdan Group may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the Professional Services industry in the United States have P/S ratios greater than 1.5x and even P/S higher than 4x aren't out of the ordinary. 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 Willdan Group

How Willdan Group Has Been Performing

Willdan Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 51% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 2.6% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 6.4%, which is noticeably more attractive.

With this in consideration, its clear as to why Willdan Group's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Willdan Group's P/S

The latest share price surge wasn't enough to lift Willdan Group's P/S close to the industry median. 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 expected, our analysis of Willdan Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

It is also worth noting that we have found 2 warning signs for Willdan Group that you need to take into consideration.

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.

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