A Piece Of The Puzzle Missing From Gatekeeper Systems Inc.'s (CVE:GSI) 29% Share Price Climb

Gatekeeper Systems Inc. (CVE:GSI) shareholders have had their patience rewarded with a 29% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 81%.

In spite of the firm bounce in price, Gatekeeper Systems' price-to-sales (or "P/S") ratio of 1.4x might still make it look like a buy right now compared to the Electronic industry in Canada, where around half of the companies have P/S ratios above 2.5x and even P/S above 11x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Gatekeeper Systems

How Gatekeeper Systems Has Been Performing

Gatekeeper Systems 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. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Gatekeeper Systems' earnings, revenue and cash flow.

How Is Gatekeeper Systems' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Gatekeeper Systems' is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 98%. The latest three year period has also seen an excellent 74% 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.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 7.7% shows it's noticeably more attractive.

With this information, we find it odd that Gatekeeper Systems is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Gatekeeper Systems' stock price has surged recently, but its but its P/S still remains modest. 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.

We're very surprised to see Gatekeeper Systems currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Before you take the next step, you should know about the 2 warning signs for Gatekeeper Systems (1 doesn't sit too well with us!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.