Benign Growth For TI Fluid Systems plc (LON:TIFS) Underpins Its Share Price

You may think that with a price-to-sales (or "P/S") ratio of 0.2x TI Fluid Systems plc (LON:TIFS) is a stock worth checking out, seeing as almost half of all the Auto Components companies in the United Kingdom have P/S ratios greater than 0.8x and even P/S higher than 5x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for TI Fluid Systems

What Does TI Fluid Systems' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, TI Fluid Systems has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on TI Fluid Systems.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 7.6% last year. The solid recent performance means it was also able to grow revenue by 25% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 2.6% each year during the coming three years according to the five analysts following the company. With the industry predicted to deliver 7.1% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why TI Fluid Systems is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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.

We've established that TI Fluid Systems maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for TI Fluid Systems (1 doesn't sit too well with us) you should be aware of.

If these risks are making you reconsider your opinion on TI Fluid Systems, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com