Gooch & Housego PLC's (LON:GHH) Share Price Is Still Matching Investor Opinion Despite 26% Slump

Gooch & Housego PLC (LON:GHH) shares have had a horrible month, losing 26% after a relatively good period beforehand. Longer-term shareholders would now have taken a real hit with the stock declining 7.0% in the last year.

In spite of the heavy fall in price, there still wouldn't be many who think Gooch & Housego's price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S in the United Kingdom's Electronic industry is similar at about 1.2x. 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.

View our latest analysis for Gooch & Housego

What Does Gooch & Housego's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Gooch & Housego has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Gooch & Housego.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Gooch & Housego 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. As a result, it also grew revenue by 22% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 3.8% per year as estimated by the five analysts watching the company. That's shaping up to be similar to the 5.0% per annum growth forecast for the broader industry.

In light of this, it's understandable that Gooch & Housego's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does Gooch & Housego's P/S Mean For Investors?

Gooch & Housego's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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 look at Gooch & Housego's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

You should always think about risks. Case in point, we've spotted 2 warning signs for Gooch & Housego you should be aware of.

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.