i3 Verticals, Inc.'s (NASDAQ:IIIV) Shares Lagging The Industry But So Is The Business

With a price-to-sales (or "P/S") ratio of 1.5x i3 Verticals, Inc. (NASDAQ:IIIV) may be sending bullish signals at the moment, given that almost half of all the Diversified Financial companies in the United States have P/S ratios greater than 2.6x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for i3 Verticals

What Does i3 Verticals' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, i3 Verticals has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on i3 Verticals.

How Is i3 Verticals' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as i3 Verticals' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 46% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 90% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 8.6% per annum during the coming three years according to the seven analysts following the company. That's not great when the rest of the industry is expected to grow by 8.5% each year.

In light of this, it's understandable that i3 Verticals' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On i3 Verticals' P/S

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.

As we suspected, our examination of i3 Verticals' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for i3 Verticals with six simple checks on some of these key factors.

If you're unsure about the strength of i3 Verticals' 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.