You may think that with a price-to-sales (or "P/S") ratio of 1.6x OneSpan Inc. (NASDAQ:OSPN) is definitely a stock worth checking out, seeing as almost half of all the Software companies in the United States have P/S ratios greater than 4.3x and even P/S above 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.  

NasdaqCM:OSPN Price to Sales Ratio vs Industry April 14th 2024

How OneSpan Has Been Performing

OneSpan could be doing better as it's been growing revenue less than most other companies lately.   The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better.  If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.    

If you'd like to see what analysts are forecasting going forward, you should check out our free report on OneSpan.

Is There Any Revenue Growth Forecasted For OneSpan?  

There's an inherent assumption that a company should far underperform the industry for P/S ratios like OneSpan's to be considered reasonable.  

Retrospectively, the last year delivered a decent 7.4% gain to the company's revenues.   The latest three year period has also seen a 9.0% overall rise in revenue, aided somewhat by its short-term performance.  Therefore, it's fair to say the revenue growth recently has been respectable for the company.  

Turning to the outlook, the next year should generate growth of 2.8%  as estimated by the four analysts watching the company.  With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why OneSpan's P/S is falling short industry peers.  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 OneSpan's P/S?

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.

We've established that OneSpan maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected.  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.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for OneSpan that you need to be mindful of.  

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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