Skillsoft Corp.'s (NYSE:SKIL) Share Price Boosted 25% But Its Business Prospects Need A Lift Too

Despite an already strong run, Skillsoft Corp. (NYSE:SKIL) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 126% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Skillsoft may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.5x, since almost half of all companies in the Professional Services industry in the United States have P/S ratios greater than 1.4x and even P/S higher than 5x are not unusual. 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 Skillsoft

What Does Skillsoft's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Skillsoft's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Skillsoft?

In order to justify its P/S ratio, Skillsoft would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 3.8% decrease to the company's top line. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 0.3% over the next year. Meanwhile, the rest of the industry is forecast to expand by 7.1%, which is noticeably more attractive.

With this in consideration, its clear as to why Skillsoft's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Skillsoft's stock price has surged recently, but its but its P/S still remains modest. 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.

We've established that Skillsoft maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Skillsoft you should be aware of.

If you're unsure about the strength of Skillsoft's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.