CPT Global Limited (ASX:CGO) Not Doing Enough For Some Investors As Its Shares Slump 34%

CPT Global Limited (ASX:CGO) shares have had a horrible month, losing 34% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 58% share price decline.

Since its price has dipped substantially, CPT Global's price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the IT industry in Australia, where around half of the companies have P/S ratios above 1.4x and even P/S above 7x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for CPT Global

What Does CPT Global's P/S Mean For Shareholders?

For instance, CPT Global's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 23%. This means it has also seen a slide in revenue over the longer-term as revenue is down 25% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 7.7% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that CPT Global is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

The southerly movements of CPT Global's shares means its P/S is now sitting at a pretty low level. 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.

It's no surprise that CPT Global maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for CPT Global you should be aware of.

If you're unsure about the strength of CPT Global'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.