TransAct Technologies Incorporated's (NASDAQ:TACT) P/S Still Appears To Be Reasonable

With a median price-to-sales (or "P/S") ratio of close to 1.4x in the Tech industry in the United States, you could be forgiven for feeling indifferent about TransAct Technologies Incorporated's (NASDAQ:TACT) P/S ratio of 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for TransAct Technologies

What Does TransAct Technologies' P/S Mean For Shareholders?

TransAct Technologies could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

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Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like TransAct Technologies' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 40%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 29% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 5.6% over the next year. Meanwhile, the rest of the industry is forecast to expand by 6.6%, which is not materially different.

In light of this, it's understandable that TransAct Technologies' 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 Bottom Line On TransAct Technologies' P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've seen that TransAct Technologies maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

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

If these risks are making you reconsider your opinion on TransAct Technologies, 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.