Straker Limited (ASX:STG) Held Back By Insufficient Growth Even After Shares Climb 36%

Straker Limited (ASX:STG) shareholders have had their patience rewarded with a 36% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 5.3% isn't as attractive.

Even after such a large jump in price, it would still be understandable if you think Straker 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 Commercial Services industry have P/S ratios above 1.5x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Straker

What Does Straker's P/S Mean For Shareholders?

Straker hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Straker.

Is There Any Revenue Growth Forecasted For Straker?

In order to justify its P/S ratio, Straker would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 9.0% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 19% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 5.1% during the coming year according to the one analyst following the company. That's not great when the rest of the industry is expected to grow by 4.7%.

With this in consideration, we find it intriguing that Straker's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Straker's P/S

Straker's stock price has surged recently, but its but its P/S still remains modest. 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.

It's clear to see that Straker maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Having said that, be aware Straker is showing 3 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Straker's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.