Weave Communications, Inc.'s (NYSE:WEAV) Share Price Boosted 25% But Its Business Prospects Need A Lift Too

Those holding Weave Communications, Inc. (NYSE:WEAV) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 56% share price drop in the last twelve months.

Even after such a large jump in price, Weave Communications may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.4x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.9x and even P/S higher than 11x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Weave Communications

What Does Weave Communications' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Weave Communications has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could 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 Weave Communications will help you uncover what's on the horizon.

How Is Weave Communications' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 17%. Pleasingly, revenue has also lifted 69% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 16% over the next year. That's shaping up to be materially lower than the 22% growth forecast for the broader industry.

With this in consideration, its clear as to why Weave Communications' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Shares in Weave Communications have risen appreciably however, its P/S is still subdued. 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 Weave Communications' 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. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Weave Communications you should be aware of.

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.