Subdued Growth No Barrier To OPENLANE, Inc.'s (NYSE:KAR) Price

There wouldn't be many who think OPENLANE, Inc.'s (NYSE:KAR) price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S for the Commercial Services industry in the United States is similar at about 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for OPENLANE

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

OPENLANE could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on OPENLANE will help you uncover what's on the horizon.

How Is OPENLANE's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 8.1% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 30% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 4.9% over the next year. With the industry predicted to deliver 10% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that OPENLANE is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

When you consider that OPENLANE'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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for OPENLANE that you need to be mindful of.

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.