Superloop Limited (ASX:SLC) Shares Slammed 26% But Getting In Cheap Might Be Difficult Regardless

Superloop Limited (ASX:SLC) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Longer-term, the stock has been solid despite a difficult 30 days, gaining 13% in the last year.

Although its price has dipped substantially, you could still be forgiven for thinking Superloop is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.3x, considering almost half the companies in Australia's Telecom industry have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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Check out our latest analysis for Superloop

What Does Superloop's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Superloop has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Superloop?

In order to justify its P/S ratio, Superloop would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 31% last year. Pleasingly, revenue has also lifted 120% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 15% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 3.2% per annum, which is noticeably less attractive.

With this information, we can see why Superloop is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

There's still some elevation in Superloop's P/S, even if the same can't be said for its share price recently. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Superloop's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 1 warning sign for Superloop that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.