Little Excitement Around SECOS Group Limited's (ASX:SES) Revenues
SECOS Group Limited's (ASX:SES) price-to-sales (or "P/S") ratio of 1.4x might make it look like a strong buy right now compared to the Chemicals industry in Australia, where around half of the companies have P/S ratios above 7.9x and even P/S above 57x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
View our latest analysis for SECOS Group
How SECOS Group Has Been Performing
While the industry has experienced revenue growth lately, SECOS Group's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Want the full picture on analyst estimates for the company? Then our free report on SECOS Group will help you uncover what's on the horizon.
Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like SECOS Group's to be considered reasonable.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 13%. Regardless, revenue has managed to lift by a handy 30% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.
Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 56% over the next year. That's shaping up to be materially lower than the 4,304% growth forecast for the broader industry.
With this information, we can see why SECOS Group is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Bottom Line On SECOS Group's 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've established that SECOS Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.
There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for SECOS Group that you should be aware of.
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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