Super Group (SGHC) Limited (NYSE:SGHC) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Super Group (SGHC) Limited (NYSE:SGHC) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last month tops off a massive increase of 143% in the last year.

After such a large jump in price, when almost half of the companies in the United States' Hospitality industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Super Group (SGHC) as a stock probably not worth researching with its 2.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Super Group (SGHC)

What Does Super Group (SGHC)'s Recent Performance Look Like?

Recent revenue growth for Super Group (SGHC) has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Super Group (SGHC).

Is There Enough Revenue Growth Forecasted For Super Group (SGHC)?

In order to justify its P/S ratio, Super Group (SGHC) would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 18%. The latest three year period has also seen a 28% overall rise in revenue, aided extensively by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 10% per year over the next three years. That's shaping up to be materially lower than the 13% each year growth forecast for the broader industry.

In light of this, it's alarming that Super Group (SGHC)'s P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Super Group (SGHC)'s P/S

The large bounce in Super Group (SGHC)'s shares has lifted the company's P/S handsomely. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've concluded that Super Group (SGHC) currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Super Group (SGHC) with six simple checks will allow you to discover any risks that could be an issue.

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.