Investors Aren't Buying Bridgeline Digital, Inc.'s (NASDAQ:BLIN) Revenues

Bridgeline Digital, Inc.'s (NASDAQ:BLIN) price-to-sales (or "P/S") ratio of 0.7x might make it look like a strong buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 4.5x and even P/S above 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Bridgeline Digital

How Has Bridgeline Digital Performed Recently?

With revenue growth that's inferior to most other companies of late, Bridgeline Digital has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Bridgeline Digital's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Bridgeline Digital?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 4.0% last year. This was backed up an excellent period prior to see revenue up by 52% 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 year should generate growth of 2.9% as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 13% growth forecast for the broader industry.

With this in consideration, its clear as to why Bridgeline Digital's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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 expected, our analysis of Bridgeline Digital's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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.

Before you take the next step, you should know about the 2 warning signs for Bridgeline Digital that we have uncovered.

If you're unsure about the strength of Bridgeline Digital'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.