Credit Clear Limited (ASX:CCR) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking further back, the 10% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, Credit Clear may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.5x, since almost half of all companies in the Software industry in Australia have P/S ratios greater than 3.3x and even P/S higher than 7x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Credit Clear

What Does Credit Clear's P/S Mean For Shareholders?

Credit Clear's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Keen to find out how analysts think Credit Clear's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Credit Clear's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The latest three year period has also seen an excellent 256% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 13% per year as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 44% per annum growth forecast for the broader industry.

In light of this, it's understandable that Credit Clear's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Despite Credit Clear's share price climbing recently, its P/S still lags most other companies. 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.

We've established that Credit Clear 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Credit Clear you should know about.

If you're unsure about the strength of Credit Clear'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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