Swift Networks Group Limited (ASX:SW1) Not Doing Enough For Some Investors As Its Shares Slump 27%

Unfortunately for some shareholders, the Swift Networks Group Limited (ASX:SW1) share price has dived 27% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 27% in that time.

After such a large drop in price, it would be understandable if you think Swift Networks Group is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.4x, considering almost half the companies in Australia's Entertainment industry have P/S ratios above 1.7x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Swift Networks Group

What Does Swift Networks Group's Recent Performance Look Like?

For example, consider that Swift Networks Group's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Swift Networks Group will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Swift Networks Group will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Swift Networks Group?

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

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 3.6%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 39% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Swift Networks Group is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

The southerly movements of Swift Networks Group's shares means its P/S is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Swift Networks Group revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with Swift Networks Group (including 2 which are potentially serious).

If these risks are making you reconsider your opinion on Swift Networks Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.