OneSpan Inc. (NASDAQ:OSPN) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 84%.

Although its price has surged higher, OneSpan's price-to-sales (or "P/S") ratio of 2.9x might still make it look like a buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 5.5x and even P/S above 13x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does OneSpan's Recent Performance Look Like?

OneSpan could be doing better as it's been growing revenue less than most other companies lately. 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 OneSpan will help you uncover what's on the horizon.

How Is OneSpan's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 7.1%. Revenue has also lifted 18% 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 0.5% as estimated by the four analysts watching the company. With the industry predicted to deliver 27% growth, the company is positioned for a weaker revenue result.

With this information, we can see why OneSpan is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On OneSpan's P/S

The latest share price surge wasn't enough to lift OneSpan's P/S close to the industry median. 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.

We've established that OneSpan maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for OneSpan you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.