Improved Revenues Required Before TPXimpact Holdings plc (LON:TPX) Stock's 34% Jump Looks Justified
Those holding TPXimpact Holdings plc (LON:TPX) shares would be relieved that the share price has rebounded 34% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 83% share price decline over the last year.
Even after such a large jump in price, it would still be understandable if you think TPXimpact Holdings is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.4x, considering almost half the companies in the United Kingdom's IT industry have P/S ratios above 1.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
See our latest analysis for TPXimpact Holdings
How Has TPXimpact Holdings Performed Recently?
Recent revenue growth for TPXimpact Holdings has been in line with the industry. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on TPXimpact Holdings will be hoping that this isn't the case.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on TPXimpact Holdings.
How Is TPXimpact Holdings' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as TPXimpact Holdings' is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 283% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 1.7% over the next year. That's shaping up to be materially lower than the 13% growth forecast for the broader industry.
In light of this, it's understandable that TPXimpact Holdings' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Key Takeaway
Despite TPXimpact Holdings' share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of TPXimpact Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. 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 4 warning signs for TPXimpact Holdings you should be aware of, and 2 of them make us uncomfortable.
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.
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