Ten Lifestyle Group Plc's (LON:TENG) Shareholders Might Be Looking For Exit
With a median price-to-sales (or "P/S") ratio of close to 1.1x in the Commercial Services industry in the United Kingdom, you could be forgiven for feeling indifferent about Ten Lifestyle Group Plc's (LON:TENG) P/S ratio of 1.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for Ten Lifestyle Group
What Does Ten Lifestyle Group's Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, Ten Lifestyle Group has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Want the full picture on analyst estimates for the company? Then our free report on Ten Lifestyle Group will help you uncover what's on the horizon.
Is There Some Revenue Growth Forecasted For Ten Lifestyle Group?
In order to justify its P/S ratio, Ten Lifestyle Group would need to produce growth that's similar to the industry.
Taking a look back first, we see that the company grew revenue by an impressive 39% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Turning to the outlook, the next three years should generate growth of 11% each year as estimated by the sole analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 15% per year, which is noticeably more attractive.
In light of this, it's curious that Ten Lifestyle Group's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
The Key Takeaway
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.
When you consider that Ten Lifestyle Group's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Ten Lifestyle Group, and understanding should be part of your investment process.
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).
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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