The Market Lifts Trifast plc (LON:TRI) Shares 26% But It Can Do More

Trifast plc (LON:TRI) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 53%.

In spite of the firm bounce in price, considering around half the companies operating in the United Kingdom's Machinery industry have price-to-sales ratios (or "P/S") above 1.2x, you may still consider Trifast as an solid investment opportunity with its 0.5x P/S ratio. 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 Trifast

What Does Trifast's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Trifast has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. 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 Trifast.

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

In order to justify its P/S ratio, Trifast would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 2.9% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 36% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 7.6% over the next year. That's shaping up to be materially higher than the 2.8% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Trifast's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Trifast's P/S?

The latest share price surge wasn't enough to lift Trifast's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

To us, it seems Trifast currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Trifast you should be aware of.

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).

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

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.