Fri. Sep 29th, 2023

Asure Software, Inc. (NASDAQ:ASUR) shareholders who were waiting for something to happen have taken a hit in the past month with the stock plummeting 25%. Still, one bad month hasn’t completely ruined the past year: Shares are up 68%, which is great even in a bull market.

Even after such a large price drop, when nearly half of the companies in the professional services industry in the United States have a price-to-sales ratio (or “P/S”) of less than 1.2x, you can still consider Asure Software as a stock is probably not worth investigating due to its price-to-earnings ratio of 1.9x. Although it is not wise to take the P/S at face value as there may be an explanation as to why it is so high.

Check out our latest analysis for Asure Software

NasdaqCM: ASUR price-to-sales ratio vs. industry September 19, 2023

What does Asure Software’s recent performance look like?

Asure Software has certainly done a good job lately, as its revenue has increased more than most other companies. The price-to-earnings ratio is likely high as investors believe this strong revenue performance will continue. You’d really hope so, otherwise you’d be paying a pretty high price for no particular reason.

If you want to see what analysts are predicting for the future, check out our free report on Asure Software.

How is Asure Software’s revenue growth trending?

The only time you’ll really feel comfortable seeing a P/S as high as Asure Software’s is when the company’s growth is on track to outperform the industry.

Retrospectively, the past year delivered an exceptional 37% gain to the company’s revenue. The last three years have also seen an excellent overall revenue increase of 67%, helped by near-term performance. Therefore, it’s fair to say that revenue growth has been fantastic for the company recently.

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Looking to the future, estimates from the eight analysts covering the company suggest that revenue should grow 7.3% over the next year. Meanwhile, the rest of the sector is expected to grow by 6.5%, which is not materially different.

In light of this, it’s curious that Asure Software’s P/S rises above most other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay for exposure to the stock. These shareholders may be disappointed if the price/earnings ratio falls to a level more in line with growth prospects.

The most important takeaway

Asure Software’s price-to-earnings ratio remains high even after its shares tumbled. In general, we prefer to limit the use of the price-to-sales ratio to determining what the market thinks about the overall health of a company.

Considering Asure Software’s future revenue forecasts are in line with the broader industry, the fact that the company is trading at a higher price-to-earnings ratio is somewhat surprising. The fact that the revenue figures aren’t setting the world on fire makes us doubt whether the company’s high P/S can be sustainable in the long term. This puts shareholders’ investments at risk and potential investors run the risk of paying an unnecessary premium.

There are also other essential risk factors to consider before investing, which we have discovered 2 warning signs for Asure Software that you should be aware of.

It is important to make sure you look for a great company, not just the first idea you come across. So if growing profitability fits your idea of ​​a great business, check this out free list of interesting companies with strong recent earnings growth (and a low price-to-earnings ratio).

This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.

By Admin