Subdued Growth No Barrier To Intellicheck, Inc. (NASDAQ:IDN) With Shares Advancing 28%

Intellicheck, Inc. (NASDAQ:IDN) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The last month tops off a massive increase of 145% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Intellicheck's P/S ratio of 5.3x, since the median price-to-sales (or "P/S") ratio for the Software industry in the United States is also close to 4.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Intellicheck

What Does Intellicheck's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Intellicheck has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

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

Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. Pleasingly, revenue has also lifted 43% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 10% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 20%, which is noticeably more attractive.

In light of this, it's curious that Intellicheck's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

Intellicheck appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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.

Our look at the analysts forecasts of Intellicheck's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Having said that, be aware Intellicheck is showing 1 warning sign in our investment analysis, 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.