VerifyMe, Inc.'s (NASDAQ:VRME) price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Electronic industry in the United States, where around half of the companies have P/S ratios above 1.5x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
With revenue growth that's superior to most other companies of late, VerifyMe 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.Keen to find out how analysts think VerifyMe's future stacks up against the industry? In that case, our free report is a great place to start.
In order to justify its P/S ratio, VerifyMe would need to produce sluggish growth that's trailing the industry.
Taking a look back first, we see that the company grew revenue by an impressive 160% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 5.7% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 6.7%, which is not materially different.
With this information, we find it odd that VerifyMe is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Our examination of VerifyMe's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.
We don't want to rain on the parade too much, but we did also find 3 warning signs for VerifyMe that you need to be mindful of.
If these risks are making you reconsider your opinion on VerifyMe, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.