More Unpleasant Surprises Could Be In Store For Vertex, Inc.'s (NASDAQ:VERX) Shares After Tumbling 26%

To the annoyance of some shareholders, Vertex, Inc. (NASDAQ:VERX) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 33% share price drop.

Even after such a large drop in price, there still wouldn't be many who think Vertex's price-to-sales (or "P/S") ratio of 5.7x is worth a mention when the median P/S in the United States' Software industry is similar at about 5.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Vertex

How Has Vertex Performed Recently?

With revenue growth that's inferior to most other companies of late, Vertex has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Vertex?

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

If we review the last year of revenue growth, the company posted a terrific increase of 15%. The strong recent performance means it was also able to grow revenue by 56% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 15% per annum during the coming three years according to the analysts following the company. With the industry predicted to deliver 37% growth per annum, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Vertex'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. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Vertex's P/S

With its share price dropping off a cliff, the P/S for Vertex 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.

Our look at the analysts forecasts of Vertex's 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. 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.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Vertex with six simple checks on some of these key factors.

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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.