Optimistic Investors Push Pitney Bowes Inc. (NYSE:PBI) Shares Up 39% But Growth Is Lacking

Pitney Bowes Inc. (NYSE:PBI) shareholders have had their patience rewarded with a 39% share price jump in the last month. The last month tops off a massive increase of 143% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Pitney Bowes' P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in the United States is also close to 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Pitney Bowes

What Does Pitney Bowes' Recent Performance Look Like?

Pitney Bowes hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Pitney Bowes' is when the company's growth is tracking the industry closely.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 38%. This means it has also seen a slide in revenue over the longer-term as revenue is down 45% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue growth is heading into negative territory, declining 2.0% over the next year. That's not great when the rest of the industry is expected to grow by 8.5%.

With this information, we find it concerning that Pitney Bowes is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Bottom Line On Pitney Bowes' P/S

Its shares have lifted substantially and now Pitney Bowes' P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our check of Pitney Bowes' analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Having said that, be aware Pitney Bowes is showing 4 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

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