There's No Escaping Lumen Technologies, Inc.'s (NYSE:LUMN) Muted Revenues Despite A 33% Share Price Rise

Lumen Technologies, Inc. (NYSE:LUMN) shares have continued their recent momentum with a 33% gain in the last month alone. This latest share price bounce rounds out a remarkable 385% gain over the last twelve months.

In spite of the firm bounce in price, Lumen Technologies' price-to-sales (or "P/S") ratio of 0.5x might still 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 5x 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.

View our latest analysis for Lumen Technologies

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

With revenue that's retreating more than the industry's average of late, Lumen Technologies has been very sluggish. It seems that many are expecting the dismal revenue performance to persist, which has repressed the P/S. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. If not, 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.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 32% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 3.6% each year as estimated by the twelve analysts watching the company. Meanwhile, the broader industry is forecast to expand by 180% per year, 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. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

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

Despite Lumen Technologies' share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with Lumen Technologies (including 1 which can't be ignored).

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.