Westminster Group PLC's (LON:WSG) Shares May Have Run Too Fast Too Soon

With a median price-to-sales (or "P/S") ratio of close to 1x in the Electronic industry in the United Kingdom, you could be forgiven for feeling indifferent about Westminster Group PLC's (LON:WSG) P/S ratio of 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Westminster Group

How Westminster Group Has Been Performing

Revenue has risen firmly for Westminster Group recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on Westminster Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Westminster Group will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Westminster Group?

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

If we review the last year of revenue growth, the company posted a terrific increase of 21%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 26% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

In contrast to the company, the rest of the industry is expected to grow by 4.5% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Westminster Group is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Final Word

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 Westminster Group revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you take the next step, you should know about the 1 warning sign for Westminster Group that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.