Topicus.com Inc.'s (CVE:TOI) Shareholders Might Be Looking For Exit
Topicus.com Inc.'s (CVE:TOI) price-to-sales (or "P/S") ratio of 6.1x might make it look like a strong sell right now compared to the Software industry in Canada, where around half of the companies have P/S ratios below 3.6x and even P/S below 1.4x are quite common. 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 Topicus.com
How Has Topicus.com Performed Recently?
Recent times haven't been great for Topicus.com as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Topicus.com.What Are Revenue Growth Metrics Telling Us About The High P/S?
The only time you'd be truly comfortable seeing a P/S as steep as Topicus.com's is when the company's growth is on track to outshine the industry decidedly.
Taking a look back first, we see that the company grew revenue by an impressive 17% last year. The latest three year period has also seen an excellent 96% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 18% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 20%, which is not materially different.
With this information, we find it interesting that Topicus.com is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.
What We Can Learn From Topicus.com's P/S?
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.
Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Topicus.com currently trades on a higher than expected P/S. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
You should always think about risks. Case in point, we've spotted 1 warning sign for Topicus.com you should be aware of.
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.
About TSXV:TOI
Topicus.com
Provides vertical market software and vertical market platforms in Europe.
Solid track record with adequate balance sheet.