Market Might Still Lack Some Conviction On GRC International Group plc (LON:GRC) Even After 61% Share Price Boost

GRC International Group plc (LON:GRC) shareholders would be excited to see that the share price has had a great month, posting a 61% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 43% over that time.

Although its price has surged higher, GRC International Group may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the IT industry in the United Kingdom have P/S ratios greater than 1.4x and even P/S higher than 4x 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.

View our latest analysis for GRC International Group

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

GRC International Group's revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on GRC International Group will be hoping that this isn't the case.

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

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

GRC International Group'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.

Retrospectively, the last year delivered a decent 2.7% gain to the company's revenues. The latest three year period has also seen a 20% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 21% during the coming year according to the only analyst following the company. That's shaping up to be materially higher than the 5.9% growth forecast for the broader industry.

In light of this, it's peculiar that GRC International 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 Does GRC International Group's P/S Mean For Investors?

Despite GRC International Group's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

GRC International Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 3 warning signs for GRC International Group (2 don't sit too well with us!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on GRC International 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.