Senetas Corporation Limited (ASX:SEN) Might Not Be As Mispriced As It Looks

You may think that with a price-to-sales (or "P/S") ratio of 1.3x Senetas Corporation Limited (ASX:SEN) is a stock worth checking out, seeing as almost half of all the Communications companies in Australia have P/S ratios greater than 1.8x and even P/S higher than 6x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Senetas

How Senetas Has Been Performing

There hasn't been much to differentiate Senetas' and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If not, then existing shareholders have reason to be optimistic 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.

How Is Senetas' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 6.5%. This was backed up an excellent period prior to see revenue up by 36% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 16% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 11% per year, which is noticeably less attractive.

In light of this, it's peculiar that Senetas' P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

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.

Senetas' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Senetas (1 is a bit concerning!) that you should be aware of.

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.