Priority Technology Holdings, Inc. (NASDAQ:PRTH) Stock's 33% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The Priority Technology Holdings, Inc. (NASDAQ:PRTH) share price has fared very poorly over the last month, falling by a substantial 33%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 30% share price drop.

Following the heavy fall in price, Priority Technology Holdings may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.4x, considering almost half of all companies in the Diversified Financial industry in the United States have P/S ratios greater than 2.4x and even P/S higher than 5x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Priority Technology Holdings

What Does Priority Technology Holdings' P/S Mean For Shareholders?

There hasn't been much to differentiate Priority Technology Holdings' and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Priority Technology Holdings will be hoping that this isn't the case.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Priority Technology Holdings' to be considered reasonable.

Retrospectively, the last year delivered a decent 9.5% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 48% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 9.8% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 7.6% growth forecast for the broader industry.

With this information, we find it odd that Priority Technology Holdings is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does Priority Technology Holdings' P/S Mean For Investors?

The southerly movements of Priority Technology Holdings' shares means its P/S is now sitting at a pretty low level. 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.

A look at Priority Technology Holdings' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Priority Technology Holdings (2 are potentially serious!) that you need to be mindful of.

If you're unsure about the strength of Priority Technology Holdings' 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.