Even With A 33% Surge, Cautious Investors Are Not Rewarding Audioboom Group plc's (LON:BOOM) Performance Completely

Audioboom Group plc (LON:BOOM) shares have had a really impressive month, gaining 33% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 69%.

Even after such a large jump in price, Audioboom Group may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Interactive Media and Services industry in the United Kingdom have P/S ratios greater than 4.2x and even P/S higher than 13x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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What Does Audioboom Group's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Audioboom Group has been doing relatively well. 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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What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as depressed as Audioboom Group's is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 11%. However, this wasn't enough as the latest three year period has seen an unpleasant 5.1% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 20% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 7.9%, which is noticeably less attractive.

In light of this, it's peculiar that Audioboom Group's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Audioboom Group's P/S?

Even after such a strong price move, Audioboom Group's P/S still trails the rest of the industry. 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.

To us, it seems Audioboom Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. 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 3 warning signs for Audioboom Group (2 can't be ignored!) that we have uncovered.

If these risks are making you reconsider your opinion on Audioboom Group, 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.