Senetas Corporation Limited (ASX:SEN) Held Back By Insufficient Growth Even After Shares Climb 33%

Senetas Corporation Limited (ASX:SEN) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 43% over that time.

Even after such a large jump in price, Senetas' price-to-sales (or "P/S") ratio of 0.9x might still make it look like a buy right now compared to the Communications industry in Australia, where around half of the companies have P/S ratios above 1.6x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Senetas

What Does Senetas' Recent Performance Look Like?

Recent times haven't been great for Senetas as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Senetas.

Is There Any Revenue Growth Forecasted For Senetas?

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

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 6.3% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the only analyst following the company. With the industry predicted to deliver 14% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Senetas' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Senetas' P/S?

Despite Senetas' share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Senetas maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 5 warning signs for Senetas (1 is significant!) that we have uncovered.

If you're unsure about the strength of Senetas' 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.