Risks Still Elevated At These Prices As Sprinklr, Inc. (NYSE:CXM) Shares Dive 32%

Sprinklr, Inc. (NYSE:CXM) shares have had a horrible month, losing 32% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 45% in the last year.

In spite of the heavy fall in price, it's still not a stretch to say that Sprinklr's price-to-sales (or "P/S") ratio of 4.4x right now seems quite "middle-of-the-road" compared to the Software industry in the United States, seeing as it matches the P/S ratio of the wider industry. 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.

See our latest analysis for Sprinklr

What Does Sprinklr's Recent Performance Look Like?

Sprinklr certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Sprinklr?

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

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 82% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the twelve analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 15%, which is noticeably more attractive.

With this information, we find it interesting that Sprinklr is trading at a fairly similar P/S compared to the industry. 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.

What We Can Learn From Sprinklr's P/S?

Following Sprinklr's share price tumble, its P/S is just clinging on to the industry median P/S. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at the analysts forecasts of Sprinklr's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Sprinklr that you need to be mindful of.

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