Smarttech247 Group plc (LON:S247) Soars 32% But It's A Story Of Risk Vs Reward

Smarttech247 Group plc (LON:S247) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Smarttech247 Group's P/S ratio of 3x, since the median price-to-sales (or "P/S") ratio for the Software industry in the United Kingdom is also close to 2.7x. 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.

See our latest analysis for Smarttech247 Group

How Smarttech247 Group Has Been Performing

Revenue has risen firmly for Smarttech247 Group recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Smarttech247 Group's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Smarttech247 Group?

In order to justify its P/S ratio, Smarttech247 Group would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. The strong recent performance means it was also able to grow revenue 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.

This is in contrast to the rest of the industry, which is expected to grow by 11% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Smarttech247 Group's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does Smarttech247 Group's P/S Mean For Investors?

Its shares have lifted substantially and now Smarttech247 Group's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We didn't quite envision Smarttech247 Group's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Before you take the next step, you should know about the 3 warning signs for Smarttech247 Group (2 are a bit concerning!) that we have uncovered.

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.