RMA Global Limited's (ASX:RMY) P/S Still Appears To Be Reasonable

When you see that almost half of the companies in the Interactive Media and Services industry in Australia have price-to-sales ratios (or "P/S") below 2.8x, RMA Global Limited (ASX:RMY) looks to be giving off some sell signals with its 3.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for RMA Global

What Does RMA Global's Recent Performance Look Like?

RMA Global certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying to much for the stock.

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

How Is RMA Global's Revenue Growth Trending?

In order to justify its P/S ratio, RMA Global would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. The latest three year period has also seen an excellent 134% overall rise in revenue, aided by its short-term performance. 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 17% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 6.9%, which is noticeably less attractive.

With this information, we can see why RMA Global is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On RMA Global's P/S

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.

As we suspected, our examination of RMA Global's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

We don't want to rain on the parade too much, but we did also find 4 warning signs for RMA Global that you need to be mindful of.

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.