Despite an already strong run, Unisys Corporation (NYSE:UIS) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 34%.
In spite of the firm bounce in price, Unisys' price-to-sales (or "P/S") ratio of 0.2x might still make it look like a buy right now compared to the IT industry in the United States, where around half of the companies have P/S ratios above 1.9x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Unisys
How Unisys Has Been Performing
Recent times haven't been great for Unisys as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
How Is Unisys' Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Unisys' to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 2.7% last year. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.
Looking ahead now, revenue is anticipated to slump, contracting by 1.1% during the coming year according to the dual analysts following the company. With the industry predicted to deliver 10% growth, that's a disappointing outcome.
With this in consideration, we find it intriguing that Unisys' P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Final Word
The latest share price surge wasn't enough to lift Unisys' P/S close to the industry median. 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.
As we suspected, our examination of Unisys' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Unisys' poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
You should always think about risks. Case in point, we've spotted 2 warning signs for Unisys you should be aware of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
