VerifyMe, Inc.'s (NASDAQ:VRME) Share Price Boosted 25% But Its Business Prospects Need A Lift Too

VerifyMe, Inc. (NASDAQ:VRME) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, VerifyMe's price-to-sales (or "P/S") ratio of 0.6x might still make it look like a buy right now compared to the Electronic industry in the United States, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. 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 VerifyMe

What Does VerifyMe's P/S Mean For Shareholders?

There hasn't been much to differentiate VerifyMe's and the industry's retreating revenue lately. One possibility is that the P/S ratio is low because investors think the company's revenue may begin to slide even faster. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. At the very least, you'd be hoping that revenue doesn't fall off a cliff if your plan is to 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.

Do Revenue Forecasts Match The Low P/S Ratio?

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 1.9%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 3.9% over the next year. With the industry predicted to deliver 9.1% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why VerifyMe's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does VerifyMe's P/S Mean For Investors?

Despite VerifyMe's share price climbing recently, its P/S still lags most other companies. 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.

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. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 4 warning signs we've spotted with VerifyMe (including 1 which doesn't sit too well with us).

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