Lacklustre Performance Is Driving Sprinklr, Inc.'s (NYSE:CXM) Low P/S

You may think that with a price-to-sales (or "P/S") ratio of 2.5x Sprinklr, Inc. (NYSE:CXM) is a stock worth checking out, seeing as almost half of all the Software companies in the United States have P/S ratios greater than 4.8x and even P/S higher than 12x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Sprinklr

What Does Sprinklr's Recent Performance Look Like?

There hasn't been much to differentiate Sprinklr's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Sprinklr will be hoping that this isn't the case.

Keen to find out how analysts think Sprinklr'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 Sprinklr?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 15% last year. The latest three year period has also seen an excellent 80% 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.

Looking ahead now, revenue is anticipated to climb by 6.2% per annum during the coming three years according to the twelve analysts following the company. That's shaping up to be materially lower than the 20% each year growth forecast for the broader industry.

With this in consideration, its clear as to why Sprinklr's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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.

We've established that Sprinklr maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Sprinklr, and understanding should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.