Thruvision Group plc's (LON:THRU) Business Is Trailing The Industry But Its Shares Aren't

When you see that almost half of the companies in the Electronic industry in the United Kingdom have price-to-sales ratios (or "P/S") below 1.1x, Thruvision Group plc (LON:THRU) looks to be giving off some sell signals with its 1.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Thruvision Group

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

With revenue growth that's superior to most other companies of late, Thruvision Group has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Thruvision Group's Revenue Growth Trending?

In order to justify its P/S ratio, Thruvision Group would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 44% gain to the company's top line. The latest three year period has also seen an excellent 69% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue growth is heading into negative territory, declining 17% over the next year. That's not great when the rest of the industry is expected to grow by 3.9%.

With this information, we find it concerning that Thruvision Group is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Thruvision Group currently trades on a much higher than expected P/S for a company whose revenues are forecast to decline. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. At these price levels, investors should remain cautious, particularly if things don't improve.

You should always think about risks. Case in point, we've spotted 3 warning signs for Thruvision Group you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.