Global Education Communities Corp. (TSE:GEC) Held Back By Insufficient Growth Even After Shares Climb 45%

Despite an already strong run, Global Education Communities Corp. (TSE:GEC) shares have been powering on, with a gain of 45% in the last thirty days. Looking further back, the 16% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, when close to half the companies operating in Canada's Consumer Services industry have price-to-sales ratios (or "P/S") above 1.6x, you may still consider Global Education Communities as an enticing stock to check out with its 0.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Global Education Communities

How Global Education Communities Has Been Performing

For instance, Global Education Communities' receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Global Education Communities will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Global Education Communities will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 8.4% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 12% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Global Education Communities' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Global Education Communities' P/S?

The latest share price surge wasn't enough to lift Global Education Communities' P/S close to the industry median. 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.

In line with expectations, Global Education Communities maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Global Education Communities (2 are a bit concerning) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.