What Veritone, Inc.'s (NASDAQ:VERI) 27% Share Price Gain Is Not Telling You

Those holding Veritone, Inc. (NASDAQ:VERI) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last month tops off a massive increase of 118% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Veritone's P/S ratio of 4.7x, since the median price-to-sales (or "P/S") ratio for the Software industry in the United States is also close to 4.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Veritone

What Does Veritone's P/S Mean For Shareholders?

Recent times haven't been great for Veritone 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.

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Is There Some Revenue Growth Forecasted For Veritone?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 39% drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 23% per year during the coming three years according to the four analysts following the company. That's shaping up to be materially lower than the 31% per annum growth forecast for the broader industry.

With this in mind, we find it intriguing that Veritone's 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 Veritone's P/S Mean For Investors?

Its shares have lifted substantially and now Veritone's P/S is back within range of the industry median. 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.

Given that Veritone's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you settle on your opinion, we've discovered 3 warning signs for Veritone (2 are concerning!) that you should be aware of.

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