Rimini Street, Inc. (NASDAQ:RMNI) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 36% in the last twelve months.

Although its price has surged higher, Rimini Street may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.2x and even P/S higher than 10x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Rimini Street

What Does Rimini Street's P/S Mean For Shareholders?

Rimini Street could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

Rimini Street'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.

If we review the last year of revenue growth, the company posted a worthy increase of 6.9%. This was backed up an excellent period prior to see revenue up by 36% 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 1.0% as estimated by the four analysts watching the company. With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Rimini Street 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 Final Word

Shares in Rimini Street have risen appreciably however, its P/S is still subdued. 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 Rimini Street'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Rimini Street (2 are a bit concerning!) that you should be aware of before investing here.

If you're unsure about the strength of Rimini Street's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.