Benign Growth For Good Drinks Australia Limited (ASX:GDA) Underpins Its Share Price

You may think that with a price-to-sales (or "P/S") ratio of 0.4x Good Drinks Australia Limited (ASX:GDA) is a stock worth checking out, seeing as almost half of all the Beverage companies in Australia have P/S ratios greater than 1x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Good Drinks Australia

What Does Good Drinks Australia's Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Good Drinks Australia has been doing quite well of late. Perhaps the market is expecting future revenue performance to follow the rest of the industry downwards, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Good Drinks Australia.

Is There Any Revenue Growth Forecasted For Good Drinks Australia?

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

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The latest three year period has also seen an excellent 134% overall rise in revenue, aided somewhat 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 one analyst covering the company suggest revenue should grow by 6.9% over the next year. Meanwhile, the rest of the industry is forecast to expand by 17%, which is noticeably more attractive.

With this in consideration, its clear as to why Good Drinks Australia's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Good Drinks Australia's P/S

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.

We've established that Good Drinks Australia maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Good Drinks Australia (1 is a bit unpleasant!) that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.