Investors Holding Back On S4 Capital plc (LON:SFOR)
When you see that almost half of the companies in the Media industry in the United Kingdom have price-to-sales ratios (or "P/S") above 1.4x, S4 Capital plc (LON:SFOR) looks to be giving off some buy signals with its 0.8x 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.
View our latest analysis for S4 Capital
What Does S4 Capital's Recent Performance Look Like?
Recent times have been advantageous for S4 Capital as its revenues have been rising faster than most other companies. 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 S4 Capital.
Is There Any Revenue Growth Forecasted For S4 Capital?
The only time you'd be truly comfortable seeing a P/S as low as S4 Capital's 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 56% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 13% per year over the next three years. With the industry only predicted to deliver 5.4% per year, the company is positioned for a stronger revenue result.
With this information, we find it odd that S4 Capital is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
What Does S4 Capital's P/S Mean For Investors?
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.
To us, it seems S4 Capital currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
Before you settle on your opinion, we've discovered 1 warning sign for S4 Capital 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).
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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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