Fewer Investors Than Expected Jumping On Raiz Invest Limited (ASX:RZI)

With a price-to-sales (or "P/S") ratio of 3.3x Raiz Invest Limited (ASX:RZI) 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 7.5x and even P/S higher than 20x 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.

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Check out our latest analysis for Raiz Invest

How Has Raiz Invest Performed Recently?

The revenue growth achieved at Raiz Invest over the last year would be more than acceptable for most companies. 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 that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for Raiz Invest, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Raiz Invest?

In order to justify its P/S ratio, Raiz Invest would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 24% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 8.9% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this in consideration, we find it intriguing that Raiz Invest's P/S falls short of its industry peers. It may be that most investors are not convinced the company can maintain recent growth rates.

The Bottom Line On Raiz Invest's P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

The fact that Raiz Invest currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. revenue trends suggest that the risk of a price decline is low, investors appear to perceive a possibility of revenue volatility in the future.

It is also worth noting that we have found 1 warning sign for Raiz Invest that you need to take into consideration.

If you're unsure about the strength of Raiz Invest'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.