There's No Escaping AI Partners Financial Inc.'s (TSE:7345) Muted Revenues

AI Partners Financial Inc.'s (TSE:7345) price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Capital Markets industry in Japan, where around half of the companies have P/S ratios above 2x and even P/S above 6x are quite common. 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 AI Partners Financial

What Does AI Partners Financial's P/S Mean For Shareholders?

AI Partners Financial has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For AI Partners Financial?

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

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 13% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 10% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that AI Partners Financial's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From AI Partners Financial's P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of AI Partners Financial revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you settle on your opinion, we've discovered 3 warning signs for AI Partners Financial (2 don't sit too well with us!) that you should be aware of.

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.