Why Investors Shouldn't Be Surprised By USP Group Limited's (SGX:BRS) P/S

There wouldn't be many who think USP Group Limited's (SGX:BRS) price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S for the Trade Distributors industry in Singapore is similar at about 0.4x. 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 USP Group

What Does USP Group's Recent Performance Look Like?

We'd have to say that with no tangible growth over the last year, USP Group's revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. Those who are bullish on USP Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 USP Group's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For USP Group?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The longer-term trend has been no better as the company has no revenue growth to show for over the last three years either. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 3.2% shows it's about the same on an annualised basis.

In light of this, it's understandable that USP Group's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

What Does USP Group's P/S Mean For Investors?

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.

As we've seen, USP Group's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Currently, with a past revenue trend that aligns closely wit the industry outlook, shareholders are confident the company's future revenue outlook won't contain any major surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with USP Group (at least 3 which are a bit concerning), and understanding them should be part of your investment process.

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.