SciDev Limited's (ASX:SDV) Prospects Need A Boost To Lift Shares

You may think that with a price-to-sales (or "P/S") ratio of 0.5x SciDev Limited (ASX:SDV) is a stock worth checking out, seeing as almost half of all the Chemicals companies in Australia have P/S ratios greater than 1.3x and even P/S higher than 14x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

See our latest analysis for SciDev

How SciDev Has Been Performing

SciDev's revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

Keen to find out how analysts think SciDev's future stacks up against the industry? In that case, our free report is a great place to start.

How Is SciDev's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as SciDev's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. Pleasingly, revenue has also lifted 125% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 4.6% during the coming year according to the one analyst following the company. That's shaping up to be materially lower than the 258% growth forecast for the broader industry.

With this information, we can see why SciDev is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does SciDev's P/S Mean For Investors?

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.

As expected, our analysis of SciDev's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

You always need to take note of risks, for example - SciDev has 1 warning sign we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.