Little Excitement Around Intellicheck, Inc.'s (NASDAQ:IDN) Revenues

With a price-to-sales (or "P/S") ratio of 2.7x Intellicheck, Inc. (NASDAQ:IDN) may be sending bullish signals at the moment, given that almost half of all the Software companies in the United States have P/S ratios greater than 5.3x and even P/S higher than 13x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Intellicheck

How Intellicheck Has Been Performing

Intellicheck could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could 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 Intellicheck will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Retrospectively, the last year delivered a decent 5.2% gain to the company's revenues. The latest three year period has also seen a 24% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 5.8% over the next year. That's shaping up to be materially lower than the 26% growth forecast for the broader industry.

With this in consideration, its clear as to why Intellicheck'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

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 Intellicheck'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. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Intellicheck has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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