SecureWorks Corp.'s (NASDAQ:SCWX) Price Is Right But Growth Is Lacking

SecureWorks Corp.'s (NASDAQ:SCWX) price-to-sales (or "P/S") ratio of 1.6x might make it look like a strong buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 4.4x and even P/S above 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for SecureWorks

What Does SecureWorks' Recent Performance Look Like?

SecureWorks 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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on SecureWorks will help you uncover what's on the horizon.

How Is SecureWorks' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as SecureWorks' 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 21%. The last three years don't look nice either as the company has shrunk revenue by 35% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 9.8% during the coming year according to the three analysts following the company. Meanwhile, the broader industry is forecast to expand by 15%, which paints a poor picture.

With this in consideration, we find it intriguing that SecureWorks' P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On SecureWorks' P/S

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that SecureWorks' P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for SecureWorks you should know about.

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