Jupiter Fund Management Plc's (LON:JUP) Share Price Boosted 28% But Its Business Prospects Need A Lift Too

Jupiter Fund Management Plc (LON:JUP) shares have continued their recent momentum with a 28% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 41%.

Even after such a large jump in price, Jupiter Fund Management's price-to-sales (or "P/S") ratio of 1.7x might still make it look like a buy right now compared to the Capital Markets industry in the United Kingdom, where around half of the companies have P/S ratios above 3x and even P/S above 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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Check out our latest analysis for Jupiter Fund Management

How Jupiter Fund Management Has Been Performing

Jupiter Fund Management could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jupiter Fund Management's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 1.3% decrease to the company's top line. As a result, revenue from three years ago have also fallen 36% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue growth is heading into negative territory, declining 2.5% per annum over the next three years. That's not great when the rest of the industry is expected to grow by 6.3% per annum.

With this information, we are not surprised that Jupiter Fund Management is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Jupiter Fund Management's stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's clear to see that Jupiter Fund Management maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Jupiter Fund Management (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

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.