Benign Growth For EverCommerce Inc. (NASDAQ:EVCM) Underpins Its Share Price

Simply Wall St · 03/25 11:13

With a price-to-sales (or "P/S") ratio of 2.5x EverCommerce Inc. (NASDAQ:EVCM) may be sending bullish signals at the moment, given that almost half of all the Software companies in the United States have P/S ratios greater than 4.3x and even P/S higher than 11x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for EverCommerce

NasdaqGS:EVCM Price to Sales Ratio vs Industry March 25th 2024

How Has EverCommerce Performed Recently?

EverCommerce could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on EverCommerce will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For EverCommerce?

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

If we review the last year of revenue growth, the company posted a worthy increase of 8.8%. Pleasingly, revenue has also lifted 100% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 climb by 4.7% per year during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 15% per annum, which is noticeably more attractive.

In light of this, it's understandable that EverCommerce's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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.

As expected, our analysis of EverCommerce's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for EverCommerce with six simple checks.

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