Bandwidth Inc. (NASDAQ:BAND) shares have had a horrible month, losing 26% after a relatively good period beforehand.    Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 25%.  

Although its price has dipped substantially, there still wouldn't be many who think Bandwidth's price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S in the United States' Telecom industry is similar at about 1.2x.  However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.    

NasdaqGS:BAND Price to Sales Ratio vs Industry June 22nd 2024

What Does Bandwidth's P/S Mean For Shareholders?

Bandwidth certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards.   Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained.  If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.    

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

Is There Some Revenue Growth Forecasted For Bandwidth?  

The only time you'd be comfortable seeing a P/S like Bandwidth's is when the company's growth is tracking the industry closely.  

Retrospectively, the last year delivered a decent 9.4% gain to the company's revenues.   This was backed up an excellent period prior to see revenue up by 63% in total over the last three years.  So we can start by confirming that the company has done a great job of growing revenues over that time.  

Turning to the outlook, the next year should generate growth of 14%  as estimated by the eight analysts watching the company.  With the industry predicted to deliver 89% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Bandwidth's P/S is closely matching its industry peers.  Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now.  Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.  

The Final Word

Bandwidth's plummeting stock price has brought its P/S back to a similar region as the rest of the industry.      While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

When you consider that Bandwidth's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio.  At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long.  This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for Bandwidth that you need to be mindful of.  

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com