Shareholders Should Be Pleased With Fiverr International Ltd.'s (NYSE:FVRR) Price

When you see that almost half of the companies in the Professional Services industry in the United States have price-to-sales ratios (or "P/S") below 1.5x, Fiverr International Ltd. (NYSE:FVRR) looks to be giving off some sell signals with its 2.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Fiverr International

What Does Fiverr International's Recent Performance Look Like?

There hasn't been much to differentiate Fiverr International's and the industry's revenue growth lately. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Fiverr International's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

Fiverr International's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a decent 8.5% gain to the company's revenues. The latest three year period has also seen an excellent 48% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 11% each year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.2% per annum, which is noticeably less attractive.

In light of this, it's understandable that Fiverr International's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Fiverr International's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Fiverr International 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 Fiverr International, 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.