Paysafe Limited (NYSE:PSFE) shareholders have had their patience rewarded with a 30% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 85% in the last year.
Even after such a large jump in price, Paysafe may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.7x, since almost half of all companies in the Diversified Financial industry in the United States have P/S ratios greater than 2.6x and even P/S higher than 5x 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.
NYSE:PSFE Price to Sales Ratio vs Industry May 31st 2024
What Does Paysafe's Recent Performance Look Like?
Recent times haven't been great for Paysafe as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Paysafe will help you uncover what's on the horizon.
How Is Paysafe's Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Paysafe's to be considered reasonable.
If we review the last year of revenue growth, the company posted a worthy increase of 7.6%. Revenue has also lifted 13% 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 actually done a good job of growing revenue over that time.
Turning to the outlook, the next year should generate growth of 6.5% as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 3.4% growth forecast for the broader industry.
In light of this, it's peculiar that Paysafe's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
What Does Paysafe's P/S Mean For Investors?
The latest share price surge wasn't enough to lift Paysafe's P/S close to the industry median. 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.
A look at Paysafe's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Paysafe with six simple checks on some of these key factors.
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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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.