A Piece Of The Puzzle Missing From Taboola.com Ltd.'s (NASDAQ:TBLA) Share Price

It's not a stretch to say that Taboola.com Ltd.'s (NASDAQ:TBLA) price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" for companies in the Interactive Media and Services industry in the United States, where the median P/S ratio is around 1.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Taboola.com

What Does Taboola.com's P/S Mean For Shareholders?

Taboola.com could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Taboola.com'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 P/S?

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

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. Revenue has also lifted 21% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 22% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 12% per year, which is noticeably less attractive.

With this information, we find it interesting that Taboola.com 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.

What We Can Learn From Taboola.com's P/S?

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.

We've established that Taboola.com currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Taboola.com with six simple checks.

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