Investors Don't See Light At End Of Upland Software, Inc.'s (NASDAQ:UPLD) Tunnel And Push Stock Down 37%

To the annoyance of some shareholders, Upland Software, Inc. (NASDAQ:UPLD) shares are down a considerable 37% in the last month, which continues a horrid run for the company. Longer-term shareholders would now have taken a real hit with the stock declining 5.7% in the last year.

Following the heavy fall in price, Upland Software 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 4.1x and even P/S higher than 9x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

We've discovered 2 warning signs about Upland Software. View them for free.

Check out our latest analysis for Upland Software

What Does Upland Software's Recent Performance Look Like?

Upland Software 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.

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

Is There Any Revenue Growth Forecasted For Upland Software?

In order to justify its P/S ratio, Upland Software would need to produce anemic growth that's substantially trailing the industry.

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 7.7%. As a result, revenue from three years ago have also fallen 9.0% overall. 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 12% during the coming year according to the three analysts following the company. Meanwhile, the broader industry is forecast to expand by 14%, which paints a poor picture.

In light of this, it's understandable that Upland Software's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Shares in Upland Software have plummeted and its P/S has followed suit. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Upland Software's P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Upland Software that you need to take into consideration.

If you're unsure about the strength of Upland Software'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.