Why Investors Shouldn't Be Surprised By One Stop Systems, Inc.'s (NASDAQ:OSS) Low P/S

With a price-to-sales (or "P/S") ratio of 0.7x One Stop Systems, Inc. (NASDAQ:OSS) may be sending bullish signals at the moment, given that almost half of all the Tech companies in the United States have P/S ratios greater than 1.6x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for One Stop Systems

How One Stop Systems Has Been Performing

With revenue that's retreating more than the industry's average of late, One Stop Systems has been very sluggish. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For One Stop Systems?

One Stop Systems' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.3%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 17% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 7.4% during the coming year according to the five analysts following the company. With the industry predicted to deliver 4.0% growth, that's a disappointing outcome.

With this in consideration, we find it intriguing that One Stop Systems' P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that One Stop Systems' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, One Stop Systems' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

You always need to take note of risks, for example - One Stop Systems has 3 warning signs we think 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.