Investors Aren't Entirely Convinced By Flowtech Fluidpower plc's (LON:FLO) Revenues

With a median price-to-sales (or "P/S") ratio of close to 0.6x in the Trade Distributors industry in the United Kingdom, you could be forgiven for feeling indifferent about Flowtech Fluidpower plc's (LON:FLO) P/S ratio of 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

We've discovered 1 warning sign about Flowtech Fluidpower. View them for free.

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What Does Flowtech Fluidpower's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Flowtech Fluidpower's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Flowtech Fluidpower's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Flowtech Fluidpower's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 4.3% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 1.7% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 8.8% each year as estimated by the three analysts watching the company. With the industry only predicted to deliver 5.3% each year, the company is positioned for a stronger revenue result.

In light of this, it's curious that Flowtech Fluidpower's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

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.

Despite enticing revenue growth figures that outpace the industry, Flowtech Fluidpower's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Flowtech Fluidpower that you should be aware of.

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.