Swift Networks Group Limited (ASX:SW1) Held Back By Insufficient Growth Even After Shares Climb 36%

Swift Networks Group Limited (ASX:SW1) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 36% in the last year.

Although its price has surged higher, Swift Networks Group may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Entertainment industry in Australia have P/S ratios greater than 1.9x and even P/S higher than 10x 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.

See our latest analysis for Swift Networks Group

How Has Swift Networks Group Performed Recently?

Revenue has risen at a steady rate over the last year for Swift Networks Group, which is generally not a bad outcome. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Swift Networks Group?

In order to justify its P/S ratio, Swift Networks Group would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 2.9% gain to the company's revenues. The latest three year period has also seen a 5.3% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 13% shows it's noticeably less attractive.

In light of this, it's understandable that Swift Networks Group's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Swift Networks Group's P/S?

The latest share price surge wasn't enough to lift Swift Networks Group's P/S close to the industry median. 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.

Our examination of Swift Networks Group confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Plus, you should also learn about these 4 warning signs we've spotted with Swift Networks Group (including 2 which are potentially serious).

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.