Shareholders Should Be Pleased With Jardine Matheson Holdings Limited's (SGX:J36) Price

There wouldn't be many who think Jardine Matheson Holdings Limited's (SGX:J36) price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S for the Industrials industry in Singapore is similar at about 0.7x. 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.

We've discovered 1 warning sign about Jardine Matheson Holdings. View them for free.

Check out our latest analysis for Jardine Matheson Holdings

How Has Jardine Matheson Holdings Performed Recently?

While the industry has experienced revenue growth lately, Jardine Matheson Holdings' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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What Are Revenue Growth Metrics Telling Us About The P/S?

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. The longer-term trend has been no better as the company has no revenue growth to show for over the last three years either. So it seems apparent to us that the company has struggled to grow revenue meaningfully over that time.

Turning to the outlook, the next three years should generate growth of 2.9% per annum as estimated by the seven analysts watching the company. With the industry predicted to deliver 4.6% growth each year, the company is positioned for a comparable revenue result.

With this in mind, it makes sense that Jardine Matheson Holdings' P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've seen that Jardine Matheson Holdings maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these 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 1 warning sign with Jardine Matheson Holdings, and understanding should be part of your investment process.

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.