Lumen Technologies, Inc. (NYSE:LUMN) Held Back By Insufficient Growth Even After Shares Climb 30%

Lumen Technologies, Inc. (NYSE:LUMN) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 46% in the last twelve months.

Although its price has surged higher, Lumen Technologies may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Telecom industry in the United States have P/S ratios greater than 1x and even P/S higher than 3x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Lumen Technologies

What Does Lumen Technologies' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Lumen Technologies' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. 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 Lumen Technologies will help you uncover what's on the horizon.

How Is Lumen Technologies' Revenue Growth Trending?

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

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 17%. As a result, revenue from three years ago have also fallen 30% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue growth is heading into negative territory, declining 4.2% each year over the next three years. Meanwhile, the broader industry is forecast to expand by 1.5% each year, which paints a poor picture.

With this in consideration, we find it intriguing that Lumen Technologies' P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Lumen Technologies' P/S?

Despite Lumen Technologies' share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Lumen Technologies' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Lumen Technologies you should know about.

If you're unsure about the strength of Lumen Technologies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.