Optimistic Investors Push Paltalk, Inc. (NASDAQ:PALT) Shares Up 33% But Growth Is Lacking

Paltalk, Inc. (NASDAQ:PALT) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 52% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Paltalk's P/S ratio of 1.9x, since the median price-to-sales (or "P/S") ratio for the Interactive Media and Services industry in the United States is also close to 1.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Paltalk

What Does Paltalk's Recent Performance Look Like?

Paltalk could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Is There Some Revenue Growth Forecasted For Paltalk?

The only time you'd be comfortable seeing a P/S like Paltalk's 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 1.9%. The last three years don't look nice either as the company has shrunk revenue by 7.6% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 7.4% during the coming year according to the only analyst following the company. With the industry predicted to deliver 13% growth, the company is positioned for a weaker revenue result.

In light of this, it's curious that Paltalk's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Paltalk's P/S

Paltalk's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at the analysts forecasts of Paltalk's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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. A positive change is needed in order to justify the current price-to-sales ratio.

You always need to take note of risks, for example - Paltalk has 4 warning signs we think you should be aware of.

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