There's No Escaping Pebble Beach Systems Group plc's (LON:PEB) Muted Revenues Despite A 49% Share Price Rise

Despite an already strong run, Pebble Beach Systems Group plc (LON:PEB) shares have been powering on, with a gain of 49% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 13% is also fairly reasonable.

In spite of the firm bounce in price, Pebble Beach Systems Group's price-to-sales (or "P/S") ratio of 1.4x might still make it look like a buy right now compared to the Software industry in the United Kingdom, where around half of the companies have P/S ratios above 2.7x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Pebble Beach Systems Group

How Pebble Beach Systems Group Has Been Performing

While the industry has experienced revenue growth lately, Pebble Beach Systems Group's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Pebble Beach Systems Group's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 7.4% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 7.8% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 0.4% over the next year. That's shaping up to be materially lower than the 9.8% growth forecast for the broader industry.

With this information, we can see why Pebble Beach Systems Group is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Pebble Beach Systems Group's P/S?

Despite Pebble Beach Systems Group's share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, our analysis of Pebble Beach Systems Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 4 warning signs for Pebble Beach Systems Group (2 are concerning!) that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.