Market Still Lacking Some Conviction On Mitek Systems, Inc. (NASDAQ:MITK)

You may think that with a price-to-sales (or "P/S") ratio of 3.5x Mitek Systems, Inc. (NASDAQ:MITK) is a stock worth checking out, seeing as almost half of all the Software companies in the United States have P/S ratios greater than 4.8x and even P/S higher than 12x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Mitek Systems

What Does Mitek Systems' Recent Performance Look Like?

Mitek Systems 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. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Mitek Systems' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 3.5% decrease to the company's top line. Even so, admirably revenue has lifted 49% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 17% over the next year. That's shaping up to be materially higher than the 14% growth forecast for the broader industry.

With this information, we find it odd that Mitek Systems is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Mitek Systems' P/S?

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.

To us, it seems Mitek Systems currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Mitek Systems that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com