Totally plc's (LON:TLY) Share Price Boosted 48% But Its Business Prospects Need A Lift Too

Totally plc (LON:TLY) shares have continued their recent momentum with a 48% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.5% in the last twelve months.

Although its price has surged higher, Totally may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Healthcare industry in the United Kingdom have P/S ratios greater than 2.1x and even P/S higher than 6x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Totally

What Does Totally's Recent Performance Look Like?

Totally hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Totally will help you uncover what's on the horizon.

How Is Totally's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 21% decrease to the company's top line. As a result, revenue from three years ago have also fallen 6.2% overall. 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 year should bring diminished returns, with revenue decreasing 20% as estimated by the lone analyst watching the company. That's not great when the rest of the industry is expected to grow by 17%.

In light of this, it's understandable that Totally'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.

What Does Totally's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Totally's P/S close to the industry median. 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 Totally's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Totally's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Totally (1 shouldn't be ignored!) that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com