Lumen Technologies, Inc.'s (NYSE:LUMN) Price Is Right But Growth Is Lacking After Shares Rocket 32%

Despite an already strong run, Lumen Technologies, Inc. (NYSE:LUMN) shares have been powering on, with a gain of 32% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 6.4% over the last year.

Although its price has surged higher, given about half the companies operating in the United States' Telecom industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider Lumen Technologies as an attractive investment with its 0.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Lumen Technologies' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 6.5% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 33% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 3.8% per year as estimated by the twelve analysts watching the company. That's not great when the rest of the industry is expected to grow by 129% per annum.

With this in consideration, we find it intriguing that Lumen Technologies' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. 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 latest share price surge wasn't enough to lift Lumen Technologies' P/S close to the industry median. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Lumen Technologies' P/S is on the lower end of the spectrum. 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.

You need to take note of risks, for example - Lumen Technologies has 2 warning signs (and 1 which is potentially serious) 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.