Benign Growth For QuinStreet, Inc. (NASDAQ:QNST) Underpins Its Share Price

With a price-to-sales (or "P/S") ratio of 0.7x QuinStreet, Inc. (NASDAQ:QNST) may be sending bullish signals at the moment, given that almost half of all the Interactive Media and Services companies in the United States have P/S ratios greater than 1.3x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for QuinStreet

How Has QuinStreet Performed Recently?

QuinStreet certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think QuinStreet's 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 Low P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 78%. The strong recent performance means it was also able to grow revenue by 88% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 9.0% as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 15% growth forecast for the broader industry.

With this information, we can see why QuinStreet is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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.

As we suspected, our examination of QuinStreet's analyst forecasts revealed that its inferior revenue outlook 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. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 1 warning sign for QuinStreet you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.