shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. 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, you could still be forgiven for feeling indifferent about Braze’s P/S ratio of 5.5x, since the median price-to-sales (or “P/S”) ratio for the Software industry in the United States is also close to 5.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
What Does Braze’s P/S Mean For Shareholders?
With revenue growth that’s superior to most other companies of late, Braze has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you’d be hoping this isn’t the case so that you could potentially pick up some stock while it’s not quite in favour.
Is There Some Revenue Growth Forecasted For Braze?
Braze’s P/S ratio would be typical for a company that’s only expected to deliver moderate growth, and importantly, perform in line with the industry.
Retrospectively, the last year delivered an exceptional 22% gain to the company’s top line. The strong recent performance means it was also able to grow revenue by 120% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 18% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 36% growth per year, the company is positioned for a weaker revenue result.
In light of this, it’s curious that Braze’s P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
The Final Word
Braze appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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 Braze’s 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.
