The Sezzle Inc. (NASDAQ:SEZL) share price has softened a substantial 31% over the previous 30 days, handing back much of the gains the stock has made lately.    Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.  

Even after such a large drop in price, Sezzle may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.9x, considering almost half of all companies in the Diversified Financial industry in the United States have P/S ratios greater than 2.5x and even P/S higher than 5x aren't out of the ordinary.   Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.  

NasdaqCM:SEZL Price to Sales Ratio vs Industry April 25th 2024

How Has Sezzle Performed Recently?

Revenue has risen firmly for Sezzle recently, which is pleasing to see.   It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S.  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.    

Although there are no analyst estimates available for Sezzle, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.  

How Is Sezzle's Revenue Growth Trending?  

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

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line.   The latest three year period has also seen an excellent 171% overall rise in revenue, aided by its short-term performance.  Therefore, it's fair to say the revenue growth recently has been superb for the company.  

When compared to the industry's one-year growth forecast of 1.3%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that Sezzle's P/S sits below the majority of other companies.  Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.  

The Bottom Line On Sezzle's P/S

The southerly movements of Sezzle's shares means its P/S is now sitting at a pretty low level.      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.

Our examination of Sezzle revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations.  When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio.  While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.    

There are also other vital risk factors to consider and we've discovered 4 warning signs for Sezzle (3 are a bit concerning!) that you should be aware of before investing here.  

If these risks are making you reconsider your opinion on Sezzle, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.