Insufficient Growth At PROS Holdings, Inc. (NYSE:PRO) Hampers Share Price

You may think that with a price-to-sales (or "P/S") ratio of 2.7x PROS Holdings, Inc. (NYSE:PRO) 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 4.9x and even P/S higher than 11x 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.

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Check out our latest analysis for PROS Holdings

What Does PROS Holdings' Recent Performance Look Like?

PROS Holdings could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

PROS 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.

If we review the last year of revenue growth, the company posted a worthy increase of 8.0%. Pleasingly, revenue has also lifted 31% 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.

Turning to the outlook, the next year should generate growth of 10% as estimated by the eight analysts watching the company. With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why PROS Holdings' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From PROS Holdings' 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.

As we suspected, our examination of PROS Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware PROS Holdings is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.