Investors Still Aren't Entirely Convinced By Audioboom Group plc's (LON:BOOM) Revenues Despite 27% Price Jump

Audioboom Group plc (LON:BOOM) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 41%.

Even after such a large jump in price, Audioboom Group may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Interactive Media and Services industry in the United Kingdom have P/S ratios greater than 2x and even P/S higher than 12x are not unusual. 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 Audioboom Group

How Audioboom Group Has Been Performing

Audioboom Group could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Audioboom Group.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Audioboom Group would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 78% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Turning to the outlook, the next year should generate growth of 22% as estimated by the sole analyst watching the company. With the industry only predicted to deliver 8.4%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Audioboom Group's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Despite Audioboom Group's share price climbing recently, its P/S still lags most other companies. 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.

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. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Audioboom Group.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.