There Is A Reason Jupiter Fund Management Plc's (LON:JUP) Price Is Undemanding

With a price-to-sales (or "P/S") ratio of 1.2x Jupiter Fund Management Plc (LON:JUP) may be sending bullish signals at the moment, given that almost half of all the Capital Markets companies in the United Kingdom have P/S ratios greater than 3.1x and even P/S higher than 9x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Jupiter Fund Management

How Has Jupiter Fund Management Performed Recently?

While the industry has experienced revenue growth lately, Jupiter Fund Management's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Jupiter Fund Management would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 7.2% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 19% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 1.4% each year as estimated by the ten analysts watching the company. Meanwhile, the broader industry is forecast to expand by 6.9% each year, which paints a poor picture.

In light of this, it's understandable that Jupiter Fund Management's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Jupiter Fund Management's P/S is on the lower end of the spectrum. 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.

Before you settle on your opinion, we've discovered 1 warning sign for Jupiter Fund Management that you should be aware of.

If these risks are making you reconsider your opinion on Jupiter Fund Management, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.