A Piece Of The Puzzle Missing From Likewise Group Plc's (LON:LIKE) 28% Share Price Climb

The Likewise Group Plc (LON:LIKE) share price has done very well over the last month, posting an excellent gain of 28%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Although its price has surged higher, there still wouldn't be many who think Likewise Group's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when it essentially matches the median P/S in the United Kingdom's Retail Distributors industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Likewise Group

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

With revenue growth that's inferior to most other companies of late, Likewise Group has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

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

Likewise Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 7.7% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 152% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should demonstrate the company's robustness, generating growth of 8.1% as estimated by the lone analyst watching the company. That would be an excellent outcome when the industry is expected to decline by 16%.

In light of this, it's peculiar that Likewise Group's P/S sits in-line with the majority of other companies. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

The Key Takeaway

Its shares have lifted substantially and now Likewise Group's P/S is back within range of the industry median. 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.

Our examination of Likewise Group's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. The market could be pricing in the event that tough industry conditions will impact future revenues. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Before you settle on your opinion, we've discovered 3 warning signs for Likewise Group 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.