Swift Networks Group Limited (ASX:SW1) Surges 27% Yet Its Low P/S Is No Reason For Excitement

Those holding Swift Networks Group Limited (ASX:SW1) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days bring the annual gain to a very sharp 40%.

Even after such a large jump in price, Swift Networks Group may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.5x, considering almost half of all companies in the Entertainment industry in Australia have P/S ratios greater than 1.7x and even P/S higher than 5x aren't out of the ordinary. 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 P/S Mean For Shareholders?

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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Swift Networks Group's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Swift Networks Group?

Swift Networks Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 2.9% gain to the company's revenues. Revenue has also lifted 5.3% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Swift Networks Group is trading at a P/S lower than the industry. 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.

The Key Takeaway

Swift Networks Group's stock price has surged recently, but its but its P/S still remains modest. 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.

In line with expectations, Swift Networks Group maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Swift Networks Group (2 can't be ignored!) that we have uncovered.

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).

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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.