With a price-to-sales (or "P/S") ratio of 3.2x WalkMe Ltd. (NASDAQ:WKME) may be sending bullish signals at the moment, given that almost half of all the Software companies in the United States have P/S ratios greater than 4.5x and even P/S higher than 11x 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.  

Check out our latest analysis for WalkMe

NasdaqGS:WKME Price to Sales Ratio vs Industry December 17th 2023

How Has WalkMe Performed Recently?

There hasn't been much to differentiate WalkMe's and the industry's revenue growth lately.   One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide.  Those who are bullish on WalkMe will be hoping that this isn't the case.    

Want the full picture on analyst estimates for the company? Then our free report on WalkMe will help you uncover what's on the horizon.  

Is There Any Revenue Growth Forecasted For WalkMe?  

The only time you'd be truly comfortable seeing a P/S as low as WalkMe's is when the company's growth is on track to lag the industry.  

If we review the last year of revenue growth, the company posted a worthy increase of 13%.   Pleasingly, revenue has also lifted 78% in aggregate from three years ago, partly thanks to the last 12 months of growth.  Therefore, it's fair to say the revenue growth recently has been superb for the company.  

Turning to the outlook, the next year should generate growth of 6.7%  as estimated by the eight analysts watching the company.  That's shaping up to be materially lower than the 15% growth forecast for the broader industry.

With this in consideration, its clear as to why WalkMe's P/S is falling short industry peers.  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 WalkMe's P/S?

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 expected, our analysis of WalkMe's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S.  At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio.  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 WalkMe that you need to be mindful of.  

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.