Investors Aren't Entirely Convinced By Cambridge Cognition Holdings Plc's (LON:COG) Revenues

Cambridge Cognition Holdings Plc's (LON:COG) price-to-sales (or "P/S") ratio of 1.4x might make it look like a strong buy right now compared to the Healthcare Services industry in the United Kingdom, where around half of the companies have P/S ratios above 3.9x and even P/S above 7x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Cambridge Cognition Holdings

How Cambridge Cognition Holdings Has Been Performing

Cambridge Cognition Holdings certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The latest three year period has also seen an excellent 117% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 15% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.7%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Cambridge Cognition Holdings' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Cambridge Cognition Holdings' P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Cambridge Cognition Holdings' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Before you take the next step, you should know about the 1 warning sign for Cambridge Cognition Holdings that we have uncovered.

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.