Risks Still Elevated At These Prices As Clarivate Plc (NYSE:CLVT) Shares Dive 25%

Clarivate Plc (NYSE:CLVT) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 30% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Clarivate's P/S ratio of 1.8x, since the median price-to-sales (or "P/S") ratio for the Professional Services industry in the United States is also close to 1.5x. 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.

Check out our latest analysis for Clarivate

How Has Clarivate Performed Recently?

While the industry has experienced revenue growth lately, Clarivate's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is Clarivate's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 1.2% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 110% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 2.0% each year during the coming three years according to the ten analysts following the company. With the industry predicted to deliver 7.1% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's curious that Clarivate's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Clarivate's P/S Mean For Investors?

Clarivate's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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 Clarivate'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. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Clarivate with six simple checks will allow you to discover any risks that could be an issue.

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