Fiverr International Ltd.'s (NYSE:FVRR) Price In Tune With Revenues

When close to half the companies in the Professional Services industry in the United States have price-to-sales ratios (or "P/S") below 1.3x, you may consider Fiverr International Ltd. (NYSE:FVRR) as a stock to potentially avoid with its 2.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Fiverr International

How Fiverr International Has Been Performing

Fiverr International could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very 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 Fiverr International.

Is There Enough Revenue Growth Forecasted For Fiverr International?

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

If we review the last year of revenue growth, the company posted a worthy increase of 5.7%. This was backed up an excellent period prior to see revenue up by 116% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 18% per year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.5% per annum, which is noticeably less attractive.

With this information, we can see why Fiverr International is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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.

Our look into Fiverr International shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Fiverr International that you should be aware of.

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.