The Price Is Right For Perfect Corp. (NYSE:PERF) Even After Diving 27%

To the annoyance of some shareholders, Perfect Corp. (NYSE:PERF) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 70% loss during that time.

In spite of the heavy fall in price, Perfect may still be sending sell signals at present with a price-to-sales (or "P/S") ratio of 5.8x, when you consider almost half of the companies in the Software industry in the United States have P/S ratios under 4.2x and even P/S lower than 1.6x 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 as high as it is.

View our latest analysis for Perfect

How Perfect Has Been Performing

With revenue growth that's inferior to most other companies of late, Perfect has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Perfect.

How Is Perfect's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 6.6%. Pleasingly, revenue has also lifted 69% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 18% during the coming year according to the three analysts following the company. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.

With this information, we can see why Perfect is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Perfect's P/S Mean For Investors?

Despite the recent share price weakness, Perfect's P/S remains higher than most other companies in the 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.

As we suspected, our examination of Perfect's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

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

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.