Getting In Cheap On Tenable Holdings, Inc. (NASDAQ:TENB) Is Unlikely

It's not a stretch to say that Tenable Holdings, Inc.'s (NASDAQ:TENB) price-to-sales (or "P/S") ratio of 5.6x right now seems quite "middle-of-the-road" for companies in the Software industry in the United States, where the median P/S ratio is around 5x. 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.

Check out our latest analysis for Tenable Holdings

How Tenable Holdings Has Been Performing

Tenable Holdings could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Tenable Holdings?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Tenable Holdings' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. The latest three year period has also seen an excellent 72% 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 12% per year over the next three years. With the industry predicted to deliver 20% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's curious that Tenable Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at the analysts forecasts of Tenable Holdings' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for Tenable Holdings you should be aware of.

If you're unsure about the strength of Tenable Holdings' 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.