LivePerson, Inc.'s (NASDAQ:LPSN) 27% Dip In Price Shows Sentiment Is Matching Revenues

Unfortunately for some shareholders, the LivePerson, Inc. (NASDAQ:LPSN) share price has dived 27% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 62% share price decline.

Following the heavy fall in price, LivePerson may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.4x and even P/S higher than 11x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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See our latest analysis for LivePerson

How Has LivePerson Performed Recently?

LivePerson could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is LivePerson's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as LivePerson's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. This means it has also seen a slide in revenue over the longer-term as revenue is down 50% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 19% during the coming year according to the three analysts following the company. Meanwhile, the broader industry is forecast to expand by 21%, which paints a poor picture.

With this information, we are not surprised that LivePerson is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Shares in LivePerson have plummeted and its P/S has followed suit. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of LivePerson's analyst forecasts revealed that its outlook for shrinking revenue is contributing 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. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

We don't want to rain on the parade too much, but we did also find 6 warning signs for LivePerson (2 shouldn't be ignored!) that you need to be mindful of.

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