There wouldn't be many who think Tenable Holdings, Inc.'s (NASDAQ:TENB) price-to-sales (or "P/S") ratio of 5.4x is worth a mention when the median P/S for the Software industry in the United States is similar at about 5.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has Tenable Holdings Performed Recently?

With revenue growth that's inferior to most other companies of late, Tenable Holdings has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Tenable Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Tenable Holdings' to be considered reasonable.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. Pleasingly, revenue has also lifted 72% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 12% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 20% per year, which is noticeably more attractive.

In light of this, it's curious that Tenable Holdings' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Tenable Holdings' P/S?

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.

Given that Tenable Holdings' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

You always need to take note of risks, for example - Tenable Holdings has 1 warning sign we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.