The Bridgeline Digital, Inc. (NASDAQ:BLIN) share price has done very well over the last month, posting an excellent gain of 27%.    Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.  

In spite of the firm bounce in price, Bridgeline Digital may still be sending very 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 Software industry in the United States have P/S ratios greater than 4.3x and even P/S higher than 12x are not unusual.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.  

NasdaqCM:BLIN Price to Sales Ratio vs Industry February 28th 2024

How Has Bridgeline Digital Performed Recently?

Bridgeline Digital could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth.   The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better.  If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.    

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Bridgeline Digital.

How Is Bridgeline Digital's Revenue Growth Trending?  

Bridgeline Digital's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.  

Retrospectively, the last year delivered a frustrating 6.4% decrease to the company's top line.   However, a few very strong years before that means that it was still able to grow revenue by an impressive 43% in total over the last three years.  Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.  

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 4.1% over the next year.  With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Bridgeline Digital's P/S sits below the majority of other companies.  It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.  

What We Can Learn From Bridgeline Digital's P/S?

Bridgeline Digital's recent share price jump still sees fails to bring its P/S alongside 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.

We've established that Bridgeline Digital maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected.  Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S.  It's hard to see the share price rising strongly in the near future under these circumstances.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Bridgeline Digital (1 is concerning!) that you need to be mindful of.  

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.