Not Many Are Piling Into CyanConnode Holdings plc (LON:CYAN) Just Yet
With a median price-to-sales (or "P/S") ratio of close to 3x in the Semiconductor industry in the United Kingdom, you could be forgiven for feeling indifferent about CyanConnode Holdings plc's (LON:CYAN) P/S ratio, which comes in at about the same. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for CyanConnode Holdings
How Has CyanConnode Holdings Performed Recently?
With revenue growth that's inferior to most other companies of late, CyanConnode Holdings has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.
Keen to find out how analysts think CyanConnode Holdings' future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The P/S Ratio?
There's an inherent assumption that a company should be matching the industry for P/S ratios like CyanConnode Holdings' to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 23% 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. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 59% per year as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 12% per year growth forecast for the broader industry.
With this information, we find it interesting that CyanConnode Holdings is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Key Takeaway
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Looking at CyanConnode Holdings' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.
We don't want to rain on the parade too much, but we did also find 2 warning signs for CyanConnode Holdings that you need to be mindful 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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