Yahoo Finance Why Investors Shouldn't Be Surprised By Gear4music (Holdings) plc's (LON:G4M) 25% Share Price Surge
Gear4music (Holdings) plc (LON:G4M) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 34% in the last year.
In spite of the firm bounce in price, it's still not a stretch to say that Gear4music (Holdings)'s price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in the United Kingdom, where the median P/S ratio is around 0.3x. 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 Gear4music (Holdings)
What Does Gear4music (Holdings)'s P/S Mean For Shareholders?
While the industry has experienced revenue growth lately, Gear4music (Holdings)'s revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
Keen to find out how analysts think Gear4music (Holdings)'s future stacks up against the industry? In that case, our free report is a great place to start.
Is There Some Revenue Growth Forecasted For Gear4music (Holdings)?
The only time you'd be comfortable seeing a P/S like Gear4music (Holdings)'s is when the company's growth is tracking the industry closely.
Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Fortunately, a few good years before that means that it was still able to grow revenue by 5.1% in total over the last three years. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Looking ahead now, revenue is anticipated to climb by 4.8% during the coming year according to the three analysts following the company. With the industry predicted to deliver 5.4% growth , the company is positioned for a comparable revenue result.
With this information, we can see why Gear4music (Holdings) is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.
What We Can Learn From Gear4music (Holdings)'s P/S?
Gear4music (Holdings) appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.
We've seen that Gear4music (Holdings) maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Gear4music (Holdings) (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
