There's No Escaping Allot Ltd.'s (NASDAQ:ALLT) Muted Revenues Despite A 35% Share Price Rise

Allot Ltd. (NASDAQ:ALLT) shares have continued their recent momentum with a 35% gain in the last month alone. The last month tops off a massive increase of 259% in the last year.

In spite of the firm bounce in price, Allot may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.5x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 5.5x and even P/S higher than 13x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Allot

What Does Allot's P/S Mean For Shareholders?

Allot could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Allot's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. As a result, revenue from three years ago have also fallen 36% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 5.4% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 21% per annum, which is noticeably more attractive.

In light of this, it's understandable that Allot's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Allot's P/S?

Even after such a strong price move, Allot's P/S still trails the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Allot's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you settle on your opinion, we've discovered 1 warning sign for Allot that you should be aware of.

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.