A Piece Of The Puzzle Missing From Saltire Capital Ltd.'s (TSE:SLT.U) 33% Share Price Climb

Saltire Capital Ltd. (TSE:SLT.U) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 49% in the last twelve months.

Even after such a large jump in price, Saltire Capital's price-to-sales (or "P/S") ratio of 1.8x might still make it look like a buy right now compared to the Capital Markets industry in Canada, where around half of the companies have P/S ratios above 2.7x and even P/S above 14x 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 limited.

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Check out our latest analysis for Saltire Capital

How Saltire Capital Has Been Performing

For instance, Saltire Capital's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Saltire Capital will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Saltire Capital, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Saltire Capital's Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.4%. Even so, admirably revenue has lifted 51% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that to the industry, which is predicted to shrink 69% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.

In light of this, it's quite peculiar that Saltire Capital's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Saltire Capital's P/S?

The latest share price surge wasn't enough to lift Saltire Capital's P/S close to the industry median. 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.

Upon analysing the past data, we see it is unexpected that Saltire Capital is currently trading at a lower P/S than the rest of the industry given that its revenue growth in the past three-year years is exceeding expectations in a challenging industry. We think potential risks might be placing significant pressure on the P/S ratio and share price. Amidst challenging industry conditions, perhaps a key concern is whether the company can sustain its superior revenue growth trajectory. It appears many are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Saltire Capital (of which 4 are a bit concerning!) you should know about.

If you're unsure about the strength of Saltire Capital's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.