Market Still Lacking Some Conviction On IG Design Group plc (LON:IGR)
When you see that almost half of the companies in the Consumer Durables industry in the United Kingdom have price-to-sales ratios (or "P/S") above 0.8x, IG Design Group plc (LON:IGR) 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.
See our latest analysis for IG Design Group
How Has IG Design Group Performed Recently?
IG Design Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on IG Design Group will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
In order to justify its P/S ratio, IG Design Group would need to produce sluggish growth that's trailing the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 19%. Regardless, revenue has managed to lift by a handy 8.5% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to remain somewhat buoyant, growing by 0.6% during the coming year according to the three analysts following the company. This isn't typically strong growth, but with the rest of the industry predicted to shrink by 11%, that would be a solid result.
With this information, we find it very odd that IG Design Group is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the contrarian forecasts and have been accepting significantly lower selling prices.
The Final Word
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.
We've established that IG Design Group currently trades on a much lower than expected P/S since its growth forecasts are potentially beating a struggling industry. We believe there could be some underlying risks that are keeping the P/S modest in the context of above-average revenue growth. Amidst challenging industry conditions, a key concern is whether the company can sustain its superior revenue growth trajectory. It appears many are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.
Before you take the next step, you should know about the 2 warning signs for IG Design Group (1 is a bit concerning!) that we have uncovered.
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.
