Improved Revenues Required Before i3 Verticals, Inc. (NASDAQ:IIIV) Stock's 27% Jump Looks Justified

i3 Verticals, Inc. (NASDAQ:IIIV) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 54%.

Although its price has surged higher, i3 Verticals may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.9x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 5.7x and even P/S higher than 13x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for i3 Verticals

What Does i3 Verticals' Recent Performance Look Like?

Recent times have been advantageous for i3 Verticals as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on i3 Verticals.

Is There Any Revenue Growth Forecasted For i3 Verticals?

In order to justify its P/S ratio, i3 Verticals would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. Still, revenue has fallen 6.7% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 9.4% over the next year. Meanwhile, the rest of the industry is forecast to expand by 25%, which is noticeably more attractive.

With this in consideration, its clear as to why i3 Verticals' 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

The latest share price surge wasn't enough to lift i3 Verticals' P/S close to the industry median. 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 i3 Verticals' 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for i3 Verticals with six simple checks.

If you're unsure about the strength of i3 Verticals' 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.