eGain Corporation (NASDAQ:EGAN) shareholders have had their patience rewarded with a 27% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.
Even after such a large jump in price, eGain may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.4x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.5x and even P/S higher than 10x 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.
See our latest analysis for eGain
How eGain Has Been Performing
With revenue growth that's inferior to most other companies of late, eGain has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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.
Is There Any Revenue Growth Forecasted For eGain?
The only time you'd be truly comfortable seeing a P/S as low as eGain's is when the company's growth is on track to lag the industry.
If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 31% in total over the last three years. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.
Looking ahead now, revenue is anticipated to climb by 2.3% during the coming year according to the two analysts following the company. With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why eGain's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Bottom Line On eGain's P/S
The latest share price surge wasn't enough to lift eGain's P/S close to the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that eGain maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.
A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for eGain with six simple checks will allow you to discover any risks that could be an issue.
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.
