Saltire Capital Ltd. (TSE:SLT.U) Might Not Be As Mispriced As It Looks

With a price-to-sales (or "P/S") ratio of 1.6x Saltire Capital Ltd. (TSE:SLT.U) may be sending very bullish signals at the moment, given that almost half of all the Capital Markets companies in Canada have P/S ratios greater than 3.7x and even P/S higher than 12x are not unusual. 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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Check out our latest analysis for Saltire Capital

How Saltire Capital Has Been Performing

Saltire Capital certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. 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?

In order to justify its P/S ratio, Saltire Capital would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered an exceptional 101% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 109% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 28% shows it's a great look while it lasts.

In light of this, it's quite peculiar that Saltire Capital's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

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

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

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. One assumption would be that there are some underlying risks to revenue that are keeping the P/S from rising to match the its strong performance. The most obvious risk is that its revenue trajectory may not keep outperforming under these tough industry conditions. It appears many are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

It is also worth noting that we have found 6 warning signs for Saltire Capital (5 make us uncomfortable!) that you need to take into consideration.

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.