Improved Revenues Required Before Phoenix Group Holdings plc (LON:PHNX) Shares Find Their Feet

When close to half the companies operating in the Insurance industry in the United Kingdom have price-to-sales ratios (or "P/S") above 1x, you may consider Phoenix Group Holdings plc (LON:PHNX) as an attractive investment with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Phoenix Group Holdings

How Phoenix Group Holdings Has Been Performing

With revenue growth that's superior to most other companies of late, Phoenix Group Holdings has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Phoenix Group Holdings' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 115%. Still, revenue has fallen 13% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue growth is heading into negative territory, declining 35% per annum over the next three years. That's not great when the rest of the industry is expected to grow by 8.2% per annum.

In light of this, it's understandable that Phoenix Group Holdings' 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 Bottom Line On Phoenix Group Holdings' P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Phoenix Group Holdings' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Phoenix Group Holdings' 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Phoenix Group Holdings you should know about.

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.