Why Investors Shouldn't Be Surprised By Lumine Group Inc.'s (CVE:LMN) 31% Share Price Surge

The Lumine Group Inc. (CVE:LMN) share price has done very well over the last month, posting an excellent gain of 31%. The last 30 days bring the annual gain to a very sharp 76%.

Following the firm bounce in price, Lumine Group may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 12.5x, when you consider almost half of the companies in the Software industry in Canada have P/S ratios under 3.6x and even P/S lower than 1.4x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Lumine Group

How Has Lumine Group Performed Recently?

Lumine Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Lumine Group will help you uncover what's on the horizon.

How Is Lumine Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Lumine Group's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 47%. The latest three year period has also seen an excellent 173% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 26% over the next year. That's shaping up to be materially higher than the 19% growth forecast for the broader industry.

In light of this, it's understandable that Lumine Group's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Lumine Group's P/S?

The strong share price surge has lead to Lumine Group's P/S soaring as well. 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.

As we suspected, our examination of Lumine Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Lumine Group (2 don't sit too well with us!) that you should be aware of before investing here.

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.