The Market Lifts Funding Circle Holdings plc (LON:FCH) Shares 71% But It Can Do More

Funding Circle Holdings plc (LON:FCH) shareholders would be excited to see that the share price has had a great month, posting a 71% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Funding Circle Holdings' P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Consumer Finance industry in the United Kingdom is also close to 0.7x. 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 Funding Circle Holdings

What Does Funding Circle Holdings' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Funding Circle Holdings has been relatively sluggish. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Funding Circle Holdings.

How Is Funding Circle Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 9.6% gain to the company's revenues. Pleasingly, revenue has also lifted 62% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 three analysts covering the company suggest revenue should grow by 32% per annum over the next three years. With the industry only predicted to deliver 22% each year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Funding Circle Holdings' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Funding Circle Holdings' P/S?

Its shares have lifted substantially and now Funding Circle Holdings' P/S is back within range of 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.

Despite enticing revenue growth figures that outpace the industry, Funding Circle Holdings' P/S isn't quite what we'd expect. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Funding Circle Holdings that you should be aware of.

If you're unsure about the strength of Funding Circle Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.