With Fiverr International Ltd. (NYSE:FVRR) It Looks Like You'll Get What You Pay For

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 1.2x, Fiverr International Ltd. (NYSE:FVRR) looks to be giving off strong sell signals with its 3.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Fiverr International

How Has Fiverr International Performed Recently?

Fiverr International could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. 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?

In order to justify its P/S ratio, Fiverr International would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 7.2% gain to the company's revenues. The latest three year period has also seen an excellent 188% overall rise in revenue, aided somewhat by its short-term performance. 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 17% each year as estimated by the ten analysts watching the company. With the industry only predicted to deliver 8.3% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Fiverr International's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Fiverr International's P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

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.

A lot of potential risks can sit within a 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 you're unsure about the strength of Fiverr International's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.