More Unpleasant Surprises Could Be In Store For Rekor Systems, Inc.'s (NASDAQ:REKR) Shares After Tumbling 33%

The Rekor Systems, Inc. (NASDAQ:REKR) share price has softened a substantial 33% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 76%, which is great even in a bull market.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Rekor Systems' P/S ratio of 4.4x, 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 Rekor Systems

How Rekor Systems Has Been Performing

Recent times haven't been great for Rekor Systems as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Rekor Systems?

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

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. The latest three year period has also seen an excellent 252% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 19% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 21%, which is noticeably more attractive.

With this in mind, we find it intriguing that Rekor Systems' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Rekor Systems' P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Rekor Systems looks to be in line with the rest of the Software 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.

When you consider that Rekor Systems' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. 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. A positive change is needed in order to justify the current price-to-sales ratio.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Rekor Systems (2 are a bit unpleasant!) that you should be aware of before investing here.

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.