Audioboom Group plc's (LON:BOOM) Subdued P/S Might Signal An Opportunity
You may think that with a price-to-sales (or "P/S") ratio of 0.8x Audioboom Group plc (LON:BOOM) is a stock worth checking out, seeing as almost half of all the Interactive Media and Services companies in the United Kingdom have P/S ratios greater than 1.8x and even P/S higher than 6x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
See our latest analysis for Audioboom Group
How Audioboom Group Has Been Performing
With revenue growth that's superior to most other companies of late, Audioboom Group has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Audioboom Group.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
In order to justify its P/S ratio, Audioboom Group would need to produce sluggish growth that's trailing the industry.
Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. Pleasingly, revenue has also lifted 236% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next year should generate growth of 11% as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 8.9%, which is not materially different.
With this in consideration, we find it intriguing that Audioboom Group's P/S is lagging behind its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
The Bottom Line On Audioboom Group's P/S
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 seen that Audioboom Group currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Audioboom Group that you should be aware of.
If you're unsure about the strength of Audioboom Group'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.
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