Graham Holdings Company's (NYSE:GHC) Price Is Right But Growth Is Lacking

When you see that almost half of the companies in the Consumer Services industry in the United States have price-to-sales ratios (or "P/S") above 1.5x, Graham Holdings Company (NYSE:GHC) looks to be giving off some buy signals with its 0.7x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Graham Holdings

How Has Graham Holdings Performed Recently?

Recent times haven't been great for Graham Holdings as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Graham Holdings will help you uncover what's on the horizon.

How Is Graham Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, Graham Holdings would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see revenue up by 58% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 6.2% as estimated by the one analyst watching the company. That's shaping up to be materially lower than the 14% growth forecast for the broader industry.

In light of this, it's understandable that Graham Holdings' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Graham Holdings' P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Graham Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Graham Holdings has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.