When you see that almost half of the companies in the Diversified Financial industry in the United States have price-to-sales ratios (or "P/S") below 2.6x, Fidelity National Information Services, Inc. (NYSE:FIS) looks to be giving off some sell signals with its 4.2x P/S ratio.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.  

NYSE:FIS Price to Sales Ratio vs Industry May 9th 2024

What Does Fidelity National Information Services' P/S Mean For Shareholders?

Fidelity National Information Services could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth.   It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing.  If not, then existing shareholders may be extremely nervous about the viability of the share price.    

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

Is There Enough Revenue Growth Forecasted For Fidelity National Information Services?  

Fidelity National Information Services' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than 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 32%.   This means it has also seen a slide in revenue over the longer-term as revenue is down 22% in total over the last three years.  Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.  

Looking ahead now, revenue is anticipated to climb by 4.0% each year during the coming three years according to the analysts following the company.  That's shaping up to be materially lower than the 10% per annum growth forecast for the broader industry.

With this information, we find it concerning that Fidelity National Information Services is trading at a P/S higher than the industry.  Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price.  Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.  

What We Can Learn From Fidelity National Information Services' P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Fidelity National Information Services, this doesn't appear to be impacting the P/S in the slightest.  The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve.  This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for Fidelity National Information Services (1 is a bit unpleasant!) that you need to be mindful of.  

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.