Revenues Working Against eGain Corporation's (NASDAQ:EGAN) Share Price Following 33% Dive

The eGain Corporation (NASDAQ:EGAN) share price has softened a substantial 33% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 80%, which is great even in a bull market.

After such a large drop in price, eGain's price-to-sales (or "P/S") ratio of 2.9x might make it look like a buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 4.7x and even P/S above 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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Check out our latest analysis for eGain

What Does eGain's Recent Performance Look Like?

eGain hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. 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.

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

How Is eGain's Revenue Growth Trending?

In order to justify its P/S ratio, eGain would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 5.4% drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 2.7% over the next year. Meanwhile, the rest of the industry is forecast to expand by 21%, which is noticeably more attractive.

With this information, we can see why eGain is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On eGain's P/S

eGain's recently weak share price has pulled its P/S back below other Software companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of eGain's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware eGain is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

If you're unsure about the strength of eGain'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.