There's No Escaping GAM Holding AG's (VTX:GAM) Muted Revenues

You may think that with a price-to-sales (or "P/S") ratio of 1.3x GAM Holding AG (VTX:GAM) is a stock worth checking out, seeing as almost half of all the Capital Markets companies in Switzerland have P/S ratios greater than 2.8x and even P/S higher than 13x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for GAM Holding

What Does GAM Holding's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at GAM Holding over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For GAM Holding?

There's an inherent assumption that a company should underperform the industry for P/S ratios like GAM Holding's to be considered reasonable.

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 38%. As a result, revenue from three years ago have also fallen 64% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 2.5% shows it's an unpleasant look.

With this information, we are not surprised that GAM Holding is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does GAM Holding's P/S Mean For Investors?

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.

As we suspected, our examination of GAM Holding revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with GAM Holding.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.