It's A Story Of Risk Vs Reward With Couchbase, Inc. (NASDAQ:BASE)

There wouldn't be many who think Couchbase, Inc.'s (NASDAQ:BASE) price-to-sales (or "P/S") ratio of 4.8x is worth a mention when the median P/S for the Software industry in the United States is similar at about 4.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Couchbase

How Has Couchbase Performed Recently?

Recent times have been advantageous for Couchbase as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Couchbase?

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

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 88% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 17% per annum as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 14% each year, which is noticeably less attractive.

With this information, we find it interesting that Couchbase is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

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.

Looking at Couchbase's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Couchbase that you should be aware of.

If you're unsure about the strength of Couchbase's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.