Alkami Technology, Inc.'s (NASDAQ:ALKT) Stock Retreats 32% But Revenues Haven't Escaped The Attention Of Investors

Alkami Technology, Inc. (NASDAQ:ALKT) shareholders that were waiting for something to happen have been dealt a blow with a 32% share price drop in the last month. The last month has meant the stock is now only up 2.5% during the last year.

Even after such a large drop in price, Alkami Technology's price-to-sales (or "P/S") ratio of 7.3x might still make it look like a strong sell right now compared to other companies in the Software industry in the United States, where around half of the companies have P/S ratios below 4.7x and even P/S below 1.8x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Alkami Technology

How Has Alkami Technology Performed Recently?

Alkami Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Alkami Technology?

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

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. Pleasingly, revenue has also lifted 119% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 26% per year as estimated by the ten analysts watching the company. That's shaping up to be materially higher than the 21% per year growth forecast for the broader industry.

In light of this, it's understandable that Alkami Technology's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Even after such a strong price drop, Alkami Technology's P/S still exceeds the industry median significantly. 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.

Our look into Alkami Technology shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Alkami Technology has 1 warning sign we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.