Shuttle Inc. (TWSE:2405) Stock Rockets 32% As Investors Are Less Pessimistic Than Expected

Shuttle Inc. (TWSE:2405) shareholders have had their patience rewarded with a 32% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 94%.

After such a large jump in price, when almost half of the companies in Taiwan's Tech industry have price-to-sales ratios (or "P/S") below 1.7x, you may consider Shuttle as a stock not worth researching with its 5.3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Shuttle

What Does Shuttle's P/S Mean For Shareholders?

We'd have to say that with no tangible growth over the last year, Shuttle's revenue has been unimpressive. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be a little nervous about the viability 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 Shuttle's earnings, revenue and cash flow.

How Is Shuttle's Revenue Growth Trending?

In order to justify its P/S ratio, Shuttle would need to produce outstanding growth that's well in excess of 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. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 30% shows it's noticeably less attractive.

With this in mind, we find it worrying that Shuttle's P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Shuttle's P/S Mean For Investors?

Shares in Shuttle have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

The fact that Shuttle currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Shuttle 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.

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