Synertec Corporation Limited's (ASX:SOP) Shares Leap 28% Yet They're Still Not Telling The Full Story

Those holding Synertec Corporation Limited (ASX:SOP) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 59% share price drop in the last twelve months.

In spite of the firm bounce in price, it would still be understandable if you think Synertec is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.9x, considering almost half the companies in Australia's Professional Services industry have P/S ratios above 1.5x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Synertec

How Synertec Has Been Performing

Synertec has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Synertec's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Synertec's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 9.0% gain to the company's revenues. Pleasingly, revenue has also lifted 76% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 3.7%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that Synertec's P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

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

Synertec's stock price has surged recently, but its but its P/S still remains modest. 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're very surprised to see Synertec currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Synertec (1 is a bit unpleasant!) that you need to be mindful of.

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.