Potential Upside For Quantum Corporation (NASDAQ:QMCO) Not Without Risk
Quantum Corporation's (NASDAQ:QMCO) price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Tech industry in the United States, where around half of the companies have P/S ratios above 0.8x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Quantum
What Does Quantum's P/S Mean For Shareholders?
Recent times have been advantageous for Quantum as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Keen to find out how analysts think Quantum's future stacks up against the industry? In that case, our free report is a great place to start.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
Quantum's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 8.8%. Still, lamentably revenue has fallen 3.7% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Turning to the outlook, the next three years should generate growth of 4.5% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 5.3% per annum, which is not materially different.
With this in consideration, we find it intriguing that Quantum's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.
The Key Takeaway
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.
It looks to us like the P/S figures for Quantum remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.
And what about other risks? Every company has them, and we've spotted 5 warning signs for Quantum (of which 2 make us uncomfortable!) you should know about.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
