Skillsoft Corp.'s (NYSE:SKIL) Share Price Is Matching Sentiment Around Its Revenues

Skillsoft Corp.'s (NYSE:SKIL) price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Professional Services industry in the United States, where around half of the companies have P/S ratios above 1.2x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Skillsoft

How Has Skillsoft Performed Recently?

Skillsoft could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Skillsoft will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Skillsoft?

The only time you'd be truly comfortable seeing a P/S as low as Skillsoft's is when the company's growth is on track to lag the industry.

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 6.2%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 3.4% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 6.5%, which is noticeably more attractive.

With this information, we can see why Skillsoft is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Skillsoft's P/S?

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.

As we suspected, our examination of Skillsoft's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Skillsoft that you need to be mindful of.

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