Investors Still Aren't Entirely Convinced By Kingswood Holdings Limited's (LON:KWG) Revenues Despite 26% Price Jump

Kingswood Holdings Limited (LON:KWG) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 38% in the last twelve months.

Although its price has surged higher, Kingswood Holdings may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Capital Markets industry in the United Kingdom have P/S ratios greater than 3x and even P/S higher than 9x 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 highly reduced P/S.

View our latest analysis for Kingswood Holdings

What Does Kingswood Holdings' Recent Performance Look Like?

For example, consider that Kingswood Holdings' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Kingswood Holdings will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Kingswood Holdings?

In order to justify its P/S ratio, Kingswood Holdings would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 41% decrease to the company's top line. Still, the latest three year period has seen an excellent 238% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

This is in contrast to the rest of the industry, which is expected to grow by 6.4% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Kingswood Holdings is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Kingswood Holdings' P/S?

Shares in Kingswood Holdings have risen appreciably however, its P/S is still subdued. 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.

Our examination of Kingswood Holdings revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Kingswood Holdings (2 make us uncomfortable) 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).

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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