Improved Revenues Required Before Kyndryl Holdings, Inc. (NYSE:KD) Stock's 32% Jump Looks Justified

Those holding Kyndryl Holdings, Inc. (NYSE:KD) shares would be relieved that the share price has rebounded 32% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 39% in the last year.

Although its price has surged higher, Kyndryl Holdings may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the IT industry in the United States have P/S ratios greater than 2.5x and even P/S higher than 6x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

We've discovered 1 warning sign about Kyndryl Holdings. View them for free.

View our latest analysis for Kyndryl Holdings

How Has Kyndryl Holdings Performed Recently?

Kyndryl Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Kyndryl Holdings' Revenue Growth Trending?

Kyndryl Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 6.2% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 18% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 1.1% per annum during the coming three years according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 17% each year, which is noticeably more attractive.

With this information, we can see why Kyndryl Holdings is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Kyndryl Holdings' P/S Mean For Investors?

Despite Kyndryl Holdings' share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Kyndryl Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 1 warning sign for Kyndryl Holdings that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.