Kyndryl Holdings, Inc.'s (NYSE:KD) Share Price Is Matching Sentiment Around Its Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.3x Kyndryl Holdings, Inc. (NYSE:KD) is definitely a stock worth checking out, seeing as almost half of all the IT companies in the United States have P/S ratios greater than 2.3x and even P/S above 6x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Kyndryl Holdings

How Kyndryl Holdings Has Been Performing

While the industry has experienced revenue growth lately, Kyndryl Holdings' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as depressed as Kyndryl Holdings' is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.9%. The last three years don't look nice either as the company has shrunk revenue by 19% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue growth is heading into negative territory, declining 1.6% over the next year. With the industry predicted to deliver 9.7% growth, that's a disappointing outcome.

In light of this, it's understandable that Kyndryl Holdings' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

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.

It's clear to see that Kyndryl Holdings maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Kyndryl Holdings' poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Kyndryl Holdings with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Kyndryl Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.