Lacklustre Performance Is Driving PROS Holdings, Inc.'s (NYSE:PRO) Low P/S

PROS Holdings, Inc.'s (NYSE:PRO) price-to-sales (or "P/S") ratio of 3.7x might make it look like a buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 5.8x and even P/S above 13x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for PROS Holdings

What Does PROS Holdings' Recent Performance Look Like?

Recent times haven't been great for PROS Holdings as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is PROS Holdings' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 8.7%. The latest three year period has also seen an excellent 31% overall rise in revenue, aided somewhat by its short-term performance. 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 9.4% as estimated by the eight analysts watching the company. That's shaping up to be materially lower than the 25% growth forecast for the broader industry.

With this information, we can see why PROS 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 We Can Learn From PROS Holdings' P/S?

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 expected, our analysis of PROS Holdings' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for PROS Holdings (1 makes us a bit uncomfortable!) that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.