Revenues Working Against Insignia Financial Ltd.'s (ASX:IFL) Share Price

With a price-to-sales (or "P/S") ratio of 1x Insignia Financial Ltd. (ASX:IFL) may be sending very bullish signals at the moment, given that almost half of all the Capital Markets companies in Australia have P/S ratios greater than 5.4x and even P/S higher than 16x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Insignia Financial

What Does Insignia Financial's Recent Performance Look Like?

Insignia Financial 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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Insignia Financial will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Insignia Financial?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Insignia Financial's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 2.3% decrease to the company's top line. Still, the latest three year period has seen an excellent 61% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to slump, contracting by 10% per annum during the coming three years according to the ten analysts following the company. With the industry predicted to deliver 6.5% growth each year, that's a disappointing outcome.

With this information, we are not surprised that Insignia Financial 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. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

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.

It's clear to see that Insignia Financial maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Insignia Financial's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Insignia Financial that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.