Aspermont Limited's (ASX:ASP) Shares Leap 60% Yet They're Still Not Telling The Full Story

Aspermont Limited (ASX:ASP) shareholders would be excited to see that the share price has had a great month, posting a 60% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 33%.

Although its price has surged higher, there still wouldn't be many who think Aspermont's price-to-sales (or "P/S") ratio of 1.4x is worth a mention when the median P/S in Australia's Media industry is similar at about 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Aspermont

What Does Aspermont's P/S Mean For Shareholders?

For instance, Aspermont's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

Aspermont's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.1%. As a result, revenue from three years ago have also fallen 10% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for a contraction of 6.3% shows the industry is even less attractive on an annualised basis.

With this in consideration, we find it intriguing but explainable that Aspermont's P/S matches closely with its industry peers. There's no guarantee the P/S has found a floor yet with recent revenue going backwards, despite the industry heading down even harder. It's conceivable that the P/S falls to lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

The Bottom Line On Aspermont's P/S

Its shares have lifted substantially and now Aspermont's P/S is back within range of the industry median. 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.

We've established that Aspermont currently trades on a slightly lower than expected P/S if you consider its recent three-year revenues aren't as bad as the forecasts for a struggling industry. The fact that the company's P/S is on par with the industry despite the fact that it outperformed it could be an indication of some unobserved threats to future revenues. One major risk is whether the company can prevent revenue performance from slipping further into decline under these tough industry conditions. While the chance of a downward share price shock is quite unlikely, there does seem to be something concerning shareholders as the relative performance would usually justify a higher price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Aspermont (2 are potentially serious!) that you should be aware of before investing here.

If you're unsure about the strength of Aspermont'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.