W.A.G payment solutions plc (LON:WPS) Surges 25% Yet Its Low P/S Is No Reason For Excitement

W.A.G payment solutions plc (LON:WPS) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.

Even after such a large jump in price, considering around half the companies operating in the United Kingdom's Diversified Financial industry have price-to-sales ratios (or "P/S") above 2.2x, you may still consider W.A.G payment solutions as an solid investment opportunity with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for W.A.G payment solutions

What Does W.A.G payment solutions' Recent Performance Look Like?

While the industry has experienced revenue growth lately, W.A.G payment solutions' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on W.A.G payment solutions will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For W.A.G payment solutions?

W.A.G payment solutions' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. Still, the latest three year period has seen an excellent 67% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 11% per annum as estimated by the eight analysts watching the company. With the industry predicted to deliver 13% growth per annum, the company is positioned for a weaker revenue result.

With this information, we can see why W.A.G payment solutions is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does W.A.G payment solutions' P/S Mean For Investors?

The latest share price surge wasn't enough to lift W.A.G payment solutions' P/S close to the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of W.A.G payment solutions' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

We don't want to rain on the parade too much, but we did also find 1 warning sign for W.A.G payment solutions that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.