Revenues Not Telling The Story For Superior Group of Companies, Inc. (NASDAQ:SGC) After Shares Rise 27%

Despite an already strong run, Superior Group of Companies, Inc. (NASDAQ:SGC) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days bring the annual gain to a very sharp 44%.

Although its price has surged higher, there still wouldn't be many who think Superior Group of Companies' price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in the United States' Luxury industry is similar at about 0.8x. 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 Superior Group of Companies

What Does Superior Group of Companies' Recent Performance Look Like?

Superior Group of Companies could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Superior Group of Companies will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.8%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 11% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 2.8% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 7.3%, which is noticeably more attractive.

With this information, we find it interesting that Superior Group of Companies is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Superior Group of Companies' P/S?

Its shares have lifted substantially and now Superior Group of Companies' P/S is back within range of the industry median. 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.

Given that Superior Group of Companies' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Superior Group of Companies (at least 1 which is significant), and understanding them should be part of your investment process.

If you're unsure about the strength of Superior Group of Companies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.