Finseta Plc (LON:FIN) Soars 27% But It's A Story Of Risk Vs Reward

Finseta Plc (LON:FIN) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. This latest share price bounce rounds out a remarkable 361% gain over the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Finseta's price-to-sales (or "P/S") ratio of 2.5x is worth a mention when the median P/S in the United Kingdom's Diversified Financial industry is similar at about 2.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Finseta

How Has Finseta Performed Recently?

Recent times haven't been great for Finseta as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. 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 Finseta will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Finseta?

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

Retrospectively, the last year delivered an exceptional 100% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 20% each year during the coming three years according to the one analyst following the company. With the industry only predicted to deliver 3.8% per year, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Finseta is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Its shares have lifted substantially and now Finseta's P/S is back within range of the industry median. 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.

Looking at Finseta's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Finseta (1 doesn't sit too well with us) you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.