Jumbo Group Limited's (Catalist:42R) price-to-sales (or "P/S") ratio of 1.2x might make it look like a buy right now compared to the Hospitality industry in Singapore, where around half of the companies have P/S ratios above 1.9x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Jumbo Group
What Does Jumbo Group's Recent Performance Look Like?
Recent times have been advantageous for Jumbo Group as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
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How Is Jumbo Group's Revenue Growth Trending?
Jumbo Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Taking a look back first, we see that the company grew revenue by an impressive 77% last year. Revenue has also lifted 5.8% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.
Turning to the outlook, the next year should generate growth of 13% as estimated by the lone analyst watching the company. That's shaping up to be materially lower than the 31% growth forecast for the broader industry.
In light of this, it's understandable that Jumbo Group's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
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.
As we suspected, our examination of Jumbo Group's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
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