Many Still Looking Away From Bandwidth Inc. (NASDAQ:BAND)

When you see that almost half of the companies in the Telecom industry in the United States have price-to-sales ratios (or "P/S") above 1x, Bandwidth Inc. (NASDAQ:BAND) looks to be giving off some buy signals with its 0.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Bandwidth

What Does Bandwidth's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Bandwidth has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you 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.

Keen to find out how analysts think Bandwidth's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Bandwidth's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 9.3% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 103% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 6.2% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 1.7% per annum, which is noticeably less attractive.

In light of this, it's peculiar that Bandwidth's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

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.

To us, it seems Bandwidth currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you settle on your opinion, we've discovered 3 warning signs for Bandwidth (2 shouldn't be ignored!) that you should be aware of.

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