When you see that almost half of the companies in the Luxury industry in the United States have price-to-sales ratios (or "P/S") above 0.7x, ToughBuilt Industries, Inc. (NASDAQ:TBLT) looks to be giving off some buy signals with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
What Does ToughBuilt Industries' Recent Performance Look Like?
ToughBuilt Industries certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ToughBuilt Industries will help you shine a light on its historical performance.
How Is ToughBuilt Industries' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as ToughBuilt Industries' is when the company's growth is on track to lag the industry.
Taking a look back first, we see that the company grew revenue by an impressive 36% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
This is in contrast to the rest of the industry, which is expected to grow by 8.0% over the next year, materially lower than the company's recent medium-term annualised growth rates.
In light of this, it's peculiar that ToughBuilt Industries' P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.
What We Can Learn From ToughBuilt Industries' P/S?
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.
We're very surprised to see ToughBuilt Industries currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.
Plus, you should also learn about these 5 warning signs we've spotted with ToughBuilt Industries (including 3 which don't sit too well with us).
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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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