Open Lending Corporation (NASDAQ:LPRO) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Looking further back, the 14% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Following the firm bounce in price, when almost half of the companies in the United States' Capital Markets industry have price-to-sales ratios (or "P/S") below 2.9x, you may consider Open Lending as a stock not worth researching with its 7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Open Lending

What Does Open Lending's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Open Lending's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Open Lending's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 37%. Even so, admirably revenue has lifted 36% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to slump, contracting by 0.1% during the coming year according to the eleven analysts following the company. That's not great when the rest of the industry is expected to grow by 8.8%.

With this in mind, we find it intriguing that Open Lending's P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Bottom Line On Open Lending's P/S

Open Lending's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

For a company with revenues that are set to decline in the context of a growing industry, Open Lending's P/S is much higher than we would've anticipated. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. Unless these conditions improve markedly, it'll be a challenging time for shareholders.

You should always think about risks. Case in point, we've spotted 1 warning sign for Open Lending you should be aware of.

If you're unsure about the strength of Open Lending'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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