There Is A Reason Guideline Group Information Technologies Ltd's (TLV:GUID) Price Is Undemanding

You may think that with a price-to-sales (or "P/S") ratio of 0.7x Guideline Group Information Technologies Ltd (TLV:GUID) is definitely a stock worth checking out, seeing as almost half of all the Capital Markets companies in Israel have P/S ratios greater than 3.5x and even P/S above 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Our free stock report includes 3 warning signs investors should be aware of before investing in Guideline Group Information Technologies. Read for free now.

View our latest analysis for Guideline Group Information Technologies

What Does Guideline Group Information Technologies' Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Guideline Group Information Technologies, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

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 Guideline Group Information Technologies' earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Guideline Group Information Technologies' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 5.3%. The solid recent performance means it was also able to grow revenue by 7.6% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 13% shows it's noticeably less attractive.

In light of this, it's understandable that Guideline Group Information Technologies' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

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 examination of Guideline Group Information Technologies confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Guideline Group Information Technologies (of which 2 can't be ignored!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.