VerifyMe, Inc. (NASDAQ:VRME) Looks Inexpensive After Falling 49% But Perhaps Not Attractive Enough

The VerifyMe, Inc. (NASDAQ:VRME) share price has softened a substantial 49% over the previous 30 days, handing back much of the gains the stock has made lately. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 16%.

Following the heavy fall in price, VerifyMe may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Electronic industry in the United States have P/S ratios greater than 2.1x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for VerifyMe

How VerifyMe Has Been Performing

While the industry has experienced revenue growth lately, VerifyMe's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on VerifyMe will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For VerifyMe?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.0%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 1.6% over the next year. With the industry predicted to deliver 10% growth, the company is positioned for a weaker revenue result.

With this information, we can see why VerifyMe is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

VerifyMe's P/S has taken a dip along with its share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of VerifyMe's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

You need to take note of risks, for example - VerifyMe has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.