Superloop Limited's (ASX:SLC) Popularity With Investors Is Clear

When you see that almost half of the companies in the Telecom industry in Australia have price-to-sales ratios (or "P/S") below 1.1x, Superloop Limited (ASX:SLC) looks to be giving off some sell signals with its 2.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Superloop

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

Superloop certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

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. The latest three year period has also seen an excellent 120% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 16% per year during the coming three years according to the ten analysts following the company. That's shaping up to be materially higher than the 2.5% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Superloop's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

We've established that Superloop maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Telecom industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Superloop, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Superloop, 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.