Stock Analysis

Splitit Payments Ltd (ASX:SPT) Not Lagging Industry On Growth Or Pricing

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Splitit Payments Ltd's (ASX:SPT) price-to-sales (or "P/S") ratio of 3.4x may not look like an appealing investment opportunity when you consider close to half the companies in the Diversified Financial industry in Australia have P/S ratios below 2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Splitit Payments

ASX:SPT Price to Sales Ratio vs Industry June 21st 2023

How Has Splitit Payments Performed Recently?

We'd have to say that with no tangible growth over the last year, Splitit Payments' revenue has been unimpressive. One possibility is that the P/S is high because investors think the benign revenue growth will improve to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Splitit Payments will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Splitit Payments?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Splitit Payments' to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The latest three year period has seen an incredible overall rise in revenue, in spite of this mediocre revenue growth of late. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it has slowed to such an extent.

Comparing that to the industry, which is only predicted to deliver 35% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's understandable that Splitit Payments' P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

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 no surprise that Splitit Payments can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Splitit Payments (including 1 which is a bit concerning).

If these risks are making you reconsider your opinion on Splitit Payments, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether Splitit Payments is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.