Lumen Technologies, Inc. (NYSE:LUMN) Not Doing Enough For Some Investors As Its Shares Slump 27%

To the annoyance of some shareholders, Lumen Technologies, Inc. (NYSE:LUMN) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The good news is that in the last year, the stock has shone bright like a diamond, gaining 193%.

Since its price has dipped substantially, Lumen Technologies' price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Telecom industry in the United States, where around half of the companies have P/S ratios above 1.3x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Lumen Technologies

What Does Lumen Technologies' P/S Mean For Shareholders?

Lumen Technologies hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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 10.0%. The last three years don't look nice either as the company has shrunk revenue by 33% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 3.5% per year during the coming three years according to the analysts following the company. Meanwhile, the broader industry is forecast to expand by 140% per annum, which paints a poor picture.

With this information, we are not surprised that Lumen Technologies is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does Lumen Technologies' P/S Mean For Investors?

The southerly movements of Lumen Technologies' shares means its P/S is now sitting at a pretty low level. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's clear to see that Lumen Technologies maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Lumen Technologies (1 doesn't sit too well with us!) that you should be aware of before investing here.

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.