Market Cool On VerifyMe, Inc.'s (NASDAQ:VRME) Revenues Pushing Shares 25% Lower

VerifyMe, Inc. (NASDAQ:VRME) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. The last month has meant the stock is now only up 8.6% during the last year.

After such a large drop in price, VerifyMe may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Electronic industry in the United States have P/S ratios greater than 1.7x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for VerifyMe

How VerifyMe Has Been Performing

VerifyMe certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. Those who are bullish on VerifyMe will be hoping that this isn't the case and the company continues to beat out the industry.

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What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, VerifyMe would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. The latest three year period has seen an incredible overall rise in revenue, in spite of this mediocre revenue growth of late. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Turning to the outlook, the next year should generate growth of 7.3% as estimated by the dual analysts watching the company. That's shaping up to be similar to the 6.7% growth forecast for the broader industry.

In light of this, it's peculiar that VerifyMe's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On VerifyMe's P/S

VerifyMe's P/S has taken a dip along with its share price. 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 VerifyMe currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

It is also worth noting that we have found 4 warning signs for VerifyMe that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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