Why Investors Shouldn't Be Surprised By Weave Communications, Inc.'s (NYSE:WEAV) Low P/S

You may think that with a price-to-sales (or "P/S") ratio of 2.4x Weave Communications, Inc. (NYSE:WEAV) is definitely a stock worth checking out, seeing as almost half of all the Software companies in the United States have P/S ratios greater than 5.3x and even P/S above 12x 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.

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Check out our latest analysis for Weave Communications

How Has Weave Communications Performed Recently?

There hasn't been much to differentiate Weave Communications' and the industry's revenue growth lately. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Keen to find out how analysts think Weave Communications' future stacks up against the industry? In that case, our free report is a great place to start.

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 18%. The strong recent performance means it was also able to grow revenue by 69% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 17% as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 21%, which is noticeably more attractive.

In light of this, it's understandable that Weave Communications' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

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

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Weave Communications maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 3 warning signs for Weave Communications (1 is a bit concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on Weave Communications, 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.