Lumen Technologies, Inc. (NYSE:LUMN) shares have had a horrible month, losing 26% after a relatively good period beforehand. The good news is that in the last year, the stock has shone bright like a diamond, gaining 238%.

Since its price has dipped substantially, Lumen Technologies' price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Telecom industry in the United States, where around half of the companies have P/S ratios above 1.2x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How Lumen Technologies Has Been Performing

While the industry has experienced revenue growth lately, Lumen Technologies' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Lumen Technologies?

In order to justify its P/S ratio, Lumen Technologies would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 33% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue growth is heading into negative territory, declining 3.1% per annum over the next three years. Meanwhile, the broader industry is forecast to expand by 159% each year, which paints a poor picture.

With this information, we are not surprised that Lumen Technologies is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Lumen Technologies' P/S

Lumen Technologies' P/S has taken a dip along with its share price. 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.

As we suspected, our examination of Lumen Technologies' analyst forecasts revealed that its outlook for shrinking revenue is contributing 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Lumen Technologies that you should be aware of.

If these risks are making you reconsider your opinion on Lumen Technologies, 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.