With a price-to-sales (or "P/S") ratio of 0.2x Hudson Global, Inc. (NASDAQ:HSON) may be sending bullish signals at the moment, given that almost half of all the Professional Services companies in the United States have P/S ratios greater than 1.2x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
Our free stock report includes 2 warning signs investors should be aware of before investing in Hudson Global. Read for free now.See our latest analysis for Hudson Global
How Has Hudson Global Performed Recently?
While the industry has experienced revenue growth lately, Hudson Global's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hudson Global.Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Hudson Global's to be considered reasonable.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.3%. As a result, revenue from three years ago have also fallen 26% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 2.3% during the coming year according to the only analyst following the company. That's shaping up to be materially lower than the 7.6% growth forecast for the broader industry.
With this information, we can see why Hudson Global is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What We Can Learn From Hudson Global's P/S?
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of Hudson Global's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.
There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Hudson Global that you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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