When close to half the companies in the Building industry in the United States have price-to-sales ratios (or "P/S") below 1.1x, you may consider Intelligent Living Application Group Inc. (NASDAQ:ILAG) as a stock to potentially avoid with its 1.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
What Does Intelligent Living Application Group's P/S Mean For Shareholders?
As an illustration, revenue has deteriorated at Intelligent Living Application Group over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Although there are no analyst estimates available for Intelligent Living Application Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, Intelligent Living Application Group would need to produce impressive growth in excess of the industry.
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 3.1%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 9.2% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.
Comparing that to the industry, which is predicted to deliver 2.4% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.
With this information, we find it interesting that Intelligent Living Application Group is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.
What Does Intelligent Living Application Group's P/S Mean For Investors?
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.
Our examination of Intelligent Living Application Group revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Intelligent Living Application Group that you should be aware of.
If these risks are making you reconsider your opinion on Intelligent Living Application Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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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