When you see that almost half of the companies in the Machinery industry in the United States have price-to-sales ratios (or "P/S") below 1.5x, Kornit Digital Ltd. (NASDAQ:KRNT) looks to be giving off strong sell signals with its 3.6x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
What Does Kornit Digital's Recent Performance Look Like?
Kornit Digital could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.
Keen to find out how analysts think Kornit Digital's future stacks up against the industry? In that case, our free report is a great place to start.
What Are Revenue Growth Metrics Telling Us About The High P/S?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Kornit Digital's to be considered reasonable.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 19%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 14% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.
Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 6.9% per year, which is noticeably less attractive.
With this in mind, it's not hard to understand why Kornit Digital's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Final Word
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of Kornit Digital's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
Before you take the next step, you should know about the 1 warning sign for Kornit Digital that we have uncovered.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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當你看到美國機械行業將近一半的公司的市銷率(或 “市銷率”)低於1.5倍時,Kornit Digital Ltd.(納斯達克股票代碼:KRNT)的市銷率似乎發出了強勁的賣出信號。但是,僅按面值計算市銷率是不明智的,因爲可以解釋其爲何如此之高。