Further Upside For Aquirian Limited (ASX:AQN) Shares Could Introduce Price Risks After 35% Bounce

The Aquirian Limited (ASX:AQN) share price has done very well over the last month, posting an excellent gain of 35%. The last 30 days bring the annual gain to a very sharp 73%.

Even after such a large jump in price, there still wouldn't be many who think Aquirian's price-to-sales (or "P/S") ratio of 1.4x is worth a mention when it essentially matches the median P/S in Australia's Professional Services industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

We've discovered 4 warning signs about Aquirian. View them for free.

Check out our latest analysis for Aquirian

What Does Aquirian's Recent Performance Look Like?

It looks like revenue growth has deserted Aquirian recently, which is not something to boast about. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. Those who are bullish on Aquirian will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Aquirian will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

Aquirian'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 there was hardly any revenue growth to speak of for the company over the past year. Although pleasingly revenue has lifted 77% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

This is in contrast to the rest of the industry, which is expected to grow by 5.2% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Aquirian's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Aquirian's P/S Mean For Investors?

Its shares have lifted substantially and now Aquirian's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Aquirian currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 4 warning signs for Aquirian (1 is significant!) that we have uncovered.

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.