The Market Lifts Creative Realities, Inc. (NASDAQ:CREX) Shares 38% But It Can Do More

Creative Realities, Inc. (NASDAQ:CREX) shareholders would be excited to see that the share price has had a great month, posting a 38% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 25% over that time.

In spite of the firm bounce in price, there still wouldn't be many who think Creative Realities' price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S in the United States' Media industry is similar at about 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Creative Realities

How Has Creative Realities Performed Recently?

Creative Realities 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. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Creative Realities' Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.2%. Even so, admirably revenue has lifted 51% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 27% over the next year. That's shaping up to be materially higher than the 2.2% growth forecast for the broader industry.

With this information, we find it interesting that Creative Realities is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Creative Realities' P/S

Its shares have lifted substantially and now Creative Realities' P/S is back within range of the industry median. 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.

Despite enticing revenue growth figures that outpace the industry, Creative Realities' P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Having said that, be aware Creative Realities is showing 2 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.