It's not a stretch to say that OPENLANE, Inc.'s (NYSE:KAR) price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" for companies in the Commercial Services industry in the United States, where the median P/S ratio is around 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for OPENLANE

What Does OPENLANE's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, OPENLANE has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For OPENLANE?

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

If we review the last year of revenue growth, the company posted a worthy increase of 3.3%. The latest three year period has also seen an excellent 64% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 5.2% during the coming year according to the seven analysts following the company. With the industry predicted to deliver 7.0% growth , the company is positioned for a comparable revenue result.

With this information, we can see why OPENLANE is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

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.

A OPENLANE's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Commercial Services industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for OPENLANE that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.