Yahoo Finance Lacklustre Performance Is Driving LifeSpeak Inc.'s (TSE:LSPK) 29% Price Drop
Unfortunately for some shareholders, the LifeSpeak Inc. (TSE:LSPK) share price has dived 29% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 70% share price decline.
Following the heavy fall in price, LifeSpeak may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Software industry in Canada have P/S ratios greater than 2.9x and even P/S higher than 10x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for LifeSpeak
What Does LifeSpeak's P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, LifeSpeak has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. 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.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on LifeSpeak.
How Is LifeSpeak's Revenue Growth Trending?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like LifeSpeak's to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 32%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 3.5% over the next year. That's shaping up to be materially lower than the 18% growth forecast for the broader industry.
With this information, we can see why LifeSpeak is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From LifeSpeak's P/S?
Shares in LifeSpeak have plummeted and its P/S has followed suit. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that LifeSpeak maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 3 warning signs for LifeSpeak that you need to be mindful of.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
