Ribbon Communications Inc.'s (NASDAQ:RBBN) P/S Still Appears To Be Reasonable

There wouldn't be many who think Ribbon Communications Inc.'s (NASDAQ:RBBN) price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S for the Communications industry in the United States is similar at about 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Ribbon Communications

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

While the industry has experienced revenue growth lately, Ribbon Communications' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Is There Some Revenue Growth Forecasted For Ribbon Communications?

Ribbon Communications' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 8.8% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 8.3% as estimated by the five analysts watching the company. With the industry predicted to deliver 8.3% growth , the company is positioned for a comparable revenue result.

In light of this, it's understandable that Ribbon Communications' P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

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.

Our look at Ribbon Communications' revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Before you take the next step, you should know about the 1 warning sign for Ribbon Communications that we have uncovered.

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.