A Piece Of The Puzzle Missing From Income Asset Management Group Limited's (ASX:IAM) 29% Share Price Climb

Those holding Income Asset Management Group Limited (ASX:IAM) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 67% share price decline over the last year.

Although its price has surged higher, it's still not a stretch to say that Income Asset Management Group's price-to-sales (or "P/S") ratio of 1.6x right now seems quite "middle-of-the-road" compared to the Diversified Financial industry in Australia, where the median P/S ratio is around 2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Income Asset Management Group

What Does Income Asset Management Group's P/S Mean For Shareholders?

Income Asset Management Group's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. Those who are bullish on Income Asset Management Group will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

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Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Income Asset Management Group would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. The latest three year period has also seen an excellent 156% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the only analyst covering the company suggest revenue growth will be highly resilient over the next year growing by 22%. With the rest of the industry predicted to shrink by 27%, that would be a fantastic result.

In light of this, it's peculiar that Income Asset Management Group's P/S sits in-line with the majority of other companies. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.

What We Can Learn From Income Asset Management Group's P/S?

Its shares have lifted substantially and now Income Asset Management Group's P/S is back within range of the industry median. 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.

We note that even though Income Asset Management Group trades at a similar P/S as the rest of the industry, it far eclipses them in terms of forecasted revenue growth. There could be some unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Income Asset Management Group (2 can't be ignored!) that you should be aware of before investing here.

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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.