Unfortunately for some shareholders, the Sphere 3D Corp. (NASDAQ:ANY) share price has dived 27% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 48% share price drop.
Following the heavy fall in price, Sphere 3D may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.4x and even P/S higher than 11x 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.
NasdaqCM:ANY Price to Sales Ratio vs Industry April 6th 2024
How Sphere 3D Has Been Performing
With revenue growth that's superior to most other companies of late, Sphere 3D has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. 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 Sphere 3D.
Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like Sphere 3D's to be considered reasonable.
Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 18% during the coming year according to the sole analyst following the company. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.
With this information, we find it odd that Sphere 3D is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
What We Can Learn From Sphere 3D's P/S?
Sphere 3D's P/S looks about as weak as its stock price lately. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
To us, it seems Sphere 3D currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.
Before you settle on your opinion, we've discovered 5 warning signs for Sphere 3D (4 make us uncomfortable!) that you should be aware 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.