PTC Inc.’s (NASDAQ:PTC) Business Is Trailing The Industry But Its Shares Aren’t

With a price-to-sales (or “P/S”) ratio of 9.7x PTC Inc. (NASDAQ:PTC) may be sending very bearish signals at the moment, given that almost half of all the Software companies in the United States have P/S ratios under 4.2x and even P/S lower than 1.6x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for PTC

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NasdaqGS:PTC Price to Sales Ratio vs Industry April 16th 2024

What Does PTC’s P/S Mean For Shareholders?

Recent times haven’t been great for PTC as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.

Keen to find out how analysts think PTC’s future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For PTC?

PTC’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.

Retrospectively, the last year delivered a decent 12% gain to the company’s revenues. Pleasingly, revenue has also lifted 42% 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 11% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 15% per annum, which is noticeably more attractive.

In light of this, it’s alarming that PTC’s P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company’s business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From PTC’s P/S?

It’s argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It comes as a surprise to see PTC trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company’s revenue estimate doesn’t bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn’t improve. This places shareholders’ investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider before investing and we’ve discovered 2 warning signs for PTC that you should be aware of.

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.

Valuation is complex, but we’re helping make it simple.

Find out whether PTC is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.

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