Revenues Working Against TPXimpact Holdings plc's (LON:TPX) Share Price Following 36% Dive

TPXimpact Holdings plc (LON:TPX) shareholders won't be pleased to see that the share price has had a very rough month, dropping 36% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 32% in that time.

Since its price has dipped substantially, when close to half the companies operating in the United Kingdom's IT industry have price-to-sales ratios (or "P/S") above 1.2x, you may consider TPXimpact Holdings as an enticing stock to check out with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for TPXimpact Holdings

What Does TPXimpact Holdings' P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, TPXimpact Holdings has been doing quite well of late. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. Those who are bullish on TPXimpact Holdings will be hoping that this isn't the case and the company continues to beat out the industry.

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

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

The only time you'd be truly comfortable seeing a P/S as low as TPXimpact Holdings' is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.1%. The latest three year period has also seen a 21% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 0.4% as estimated by the two analysts watching the company. That's not great when the rest of the industry is expected to grow by 7.8%.

With this in consideration, we find it intriguing that TPXimpact Holdings' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

TPXimpact Holdings' P/S has taken a dip along with its share price. 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.

As we suspected, our examination of TPXimpact Holdings' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, TPXimpact Holdings' poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for TPXimpact Holdings you should be aware of, and 2 of them shouldn't be ignored.

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.