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When close to half the companies in the Communications industry in the United Kingdom have price-to-sales ratios (or "P/S") below 1.2x, you may consider SRT Marine Systems plc (LON:SRT) as a stock to avoid entirely with its 3.5x 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 so lofty.
View our latest analysis for SRT Marine Systems
How SRT Marine Systems Has Been Performing
SRT Marine Systems certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
Keen to find out how analysts think SRT Marine Systems' future stacks up against the industry? In that case, our free report is a great place to start.
How Is SRT Marine Systems' Revenue Growth Trending?
In order to justify its P/S ratio, SRT Marine Systems would need to produce outstanding growth that's well in excess of the industry.
Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The amazing performance means it was also able to grow revenue by 61% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 132% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 9.1% growth forecast for the broader industry.
In light of this, it's understandable that SRT Marine Systems' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Key Takeaway
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.
As we suspected, our examination of SRT Marine Systems' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
You should always think about risks. Case in point, we've spotted 4 warning signs for SRT Marine Systems you should be aware of, and 2 of them are potentially serious.