NextEd Group Limited's (ASX:NXD) Price Is Right But Growth Is Lacking After Shares Rocket 27%

NextEd Group Limited (ASX:NXD) shares have continued their recent momentum with a 27% gain in the last month alone. But the last month did very little to improve the 55% share price decline over the last year.

In spite of the firm bounce in price, considering around half the companies operating in Australia's Consumer Services industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider NextEd Group as an solid investment opportunity with its 0.3x 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 limited.

View our latest analysis for NextEd Group

How Has NextEd Group Performed Recently?

NextEd Group's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on NextEd Group will be hoping that this isn't the case.

Keen to find out how analysts think NextEd Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is NextEd Group's Revenue Growth Trending?

NextEd Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.9% last year. The latest three year period has seen an incredible overall rise in revenue, even though the last 12 month performance was only fair. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 1.8% each year as estimated by the two analysts watching the company. Meanwhile, the broader industry is forecast to expand by 5.7% per year, which paints a poor picture.

With this information, we are not surprised that NextEd Group is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

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

It's clear to see that NextEd Group maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for NextEd Group (of which 1 is potentially serious!) you should know about.

If you're unsure about the strength of NextEd Group'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.