Investors Still Aren't Entirely Convinced By RF Capital Group Inc.'s (TSE:RCG) Revenues Despite 30% Price Jump

RF Capital Group Inc. (TSE:RCG) shares have had a really impressive month, gaining 30% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 33%.

Even after such a large jump in price, RF Capital Group's price-to-sales (or "P/S") ratio of 0.5x might still make it look like a strong buy right now compared to the wider Capital Markets industry in Canada, where around half of the companies have P/S ratios above 4.5x and even P/S above 24x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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See our latest analysis for RF Capital Group

How Has RF Capital Group Performed Recently?

RF Capital Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Is There Any Revenue Growth Forecasted For RF Capital Group?

RF Capital Group's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. The solid recent performance means it was also able to grow revenue by 15% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the two analysts covering the company suggest revenue growth will be highly resilient over the next year growing by 14%. With the rest of the industry predicted to shrink by 27%, that would be a fantastic result.

With this in mind, we find it intriguing that RF Capital Group's P/S falls short of its industry peers. It looks like most investors aren't convinced at all that the company can achieve positive future growth in the face of a shrinking broader industry.

What Does RF Capital Group's P/S Mean For Investors?

Shares in RF Capital Group have risen appreciably however, its P/S is still subdued. 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.

Our look into RF Capital Group's analyst forecasts has shown that it could be trading at a significant discount in terms of P/S, as it is expected to far outperform the industry. We believe there could be some underlying risks that are keeping the P/S modest in the context of above-average revenue growth. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. So, the risk of a price drop looks to be subdued, but investors seem to think future revenue could see a lot of volatility.

Having said that, be aware RF Capital Group is showing 1 warning sign in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.