Alight, Inc.'s (NYSE:ALIT) P/S Is On The Mark

With a median price-to-sales (or "P/S") ratio of close to 1.2x in the Professional Services industry in the United States, you could be forgiven for feeling indifferent about Alight, Inc.'s (NYSE:ALIT) P/S ratio of 1.3x. 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.

View our latest analysis for Alight

What Does Alight's P/S Mean For Shareholders?

Alight's revenue growth of late has been pretty similar to most other companies. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

Keen to find out how analysts think Alight'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 Alight?

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

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. Revenue has also lifted 24% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 7.7% over the next year. That's shaping up to be similar to the 6.9% growth forecast for the broader industry.

In light of this, it's understandable that Alight's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've seen that Alight maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Alight with six simple checks.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.