Pureprofile Ltd (ASX:PPL) Shares Fly 27% But Investors Aren't Buying For Growth

Pureprofile Ltd (ASX:PPL) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 73%.

Even after such a large jump in price, Pureprofile may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.1x, since almost half of all companies in the IT industry in Australia have P/S ratios greater than 1.6x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Check out our latest analysis for Pureprofile

How Has Pureprofile Performed Recently?

Pureprofile certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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.

Keen to find out how analysts think Pureprofile's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Pureprofile's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 19%. The latest three year period has also seen an excellent 61% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 12% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 40%, which is noticeably more attractive.

With this information, we can see why Pureprofile is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The latest share price surge wasn't enough to lift Pureprofile's P/S close to the industry median. 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 expected, our analysis of Pureprofile's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these 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 1 warning sign for Pureprofile that we have uncovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.