Fewer Investors Than Expected Jumping On Comms Group Limited (ASX:CCG)

When close to half the companies operating in the Telecom industry in Australia have price-to-sales ratios (or "P/S") above 1.1x, you may consider Comms Group Limited (ASX:CCG) as an attractive investment with its 0.5x P/S ratio. 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 Comms Group

What Does Comms Group's Recent Performance Look Like?

Recent times have been advantageous for Comms Group as its revenues have been rising faster 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.

Want the full picture on analyst estimates for the company? Then our free report on Comms Group will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Comms Group?

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

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. Pleasingly, revenue has also lifted 179% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 9.6% as estimated by the sole analyst watching the company. With the industry only predicted to deliver 6.2%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Comms Group's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

A look at Comms Group's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Comms Group you should know about.

If these risks are making you reconsider your opinion on Comms Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.