Take Care Before Diving Into The Deep End On Finseta Plc (LON:FIN)

It's not a stretch to say that Finseta Plc's (LON:FIN) price-to-sales (or "P/S") ratio of 1.8x right now seems quite "middle-of-the-road" for companies in the Diversified Financial industry in the United Kingdom, where the median P/S ratio is around 2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View 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. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. 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?

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

Retrospectively, the last year delivered an exceptional 70% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 18% per year during the coming three years according to the lone analyst following the company. That's shaping up to be materially higher than the 8.3% per annum growth forecast for the broader industry.

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.

What Does Finseta's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

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. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Finseta (1 doesn't sit too well with us!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.