Even With A 28% Surge, Cautious Investors Are Not Rewarding S4 Capital plc's (LON:SFOR) Performance Completely

S4 Capital plc (LON:SFOR) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 66% share price drop in the last twelve months.

In spite of the firm bounce in price, S4 Capital may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Media industry in the United Kingdom have P/S ratios greater than 1x and even P/S higher than 3x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for S4 Capital

How S4 Capital Has Been Performing

While the industry has experienced revenue growth lately, S4 Capital's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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.

Keen to find out how analysts think S4 Capital's future stacks up against the industry? In that case, our free report is a great place to start.

How Is S4 Capital's Revenue Growth Trending?

S4 Capital's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.4%. Still, the latest three year period has seen an excellent 195% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 2.3% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 2.4% per annum, which is not materially different.

With this in consideration, we find it intriguing that S4 Capital's P/S is lagging behind its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From S4 Capital's P/S?

S4 Capital's stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've seen that S4 Capital currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for S4 Capital that you should be aware of.

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.