Potential Upside For Superloop Limited (ASX:SLC) Not Without Risk
There wouldn't be many who think Superloop Limited's (ASX:SLC) price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S for the Telecom industry in Australia is similar at about 1.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
See our latest analysis for Superloop
What Does Superloop's P/S Mean For Shareholders?
Superloop certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling 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 Superloop.
How Is Superloop's Revenue Growth Trending?
Superloop's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, we see that the company grew revenue by an impressive 74% last year. The latest three year period has also seen an excellent 159% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.3%, which is noticeably less attractive.
In light of this, it's curious that Superloop's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.
What We Can Learn From Superloop's P/S?
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 Superloop currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Superloop (1 is a bit unpleasant) 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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