Upland Software, Inc.’s (NASDAQ:UPLD) price-to-sales (or “P/S”) ratio of 0.4x might make it look like a strong buy right now compared to the Software industry in the United States, where around half of the companies have P /S ratios above 4.4x and even P/S above 10x are quite common. 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 Upland Software
How Has Upland Software Performed Recently?
With revenue growth that’s inferior to most other companies of late, Upland Software has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you’d be hoping revenue won’t get any worse and that you could pick up some stock while it’s out of favor.
Want the full picture on analyst estimates for the company? Then our free report on Upland Software will help you uncover what’s on the horizon.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
Upland Software’s P/S ratio would be typical for a company that’s expected to deliver very poor growth or even falling revenue, and most importantly, perform much worse than the industry.
Retrospectively, the last year delivered a decent 5.1% gain to the company’s revenues. The most recent three year period has also seen an excellent 43% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.
Looking ahead now, revenue is anticipated to slump, contracting by 1.0% per year during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 13% growth per annum, that’s a disappointing outcome.
With this information, we are not surprised that Upland Software is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What We Can Learn From Upland Software’s P/S?
We’d say the price-to-sales ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
It’s clear to see that Upland Software maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they consider 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.
There are also other vital risk factors to consider before investing and we’ve discovered 3 warning signs for Upland Software that you should be aware of.
If you’re elements about the strength of Upland Software’s businesswhy not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
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