Super Group (SGHC) Limited's (NYSE:SGHC) Shares Climb 48% But Its Business Is Yet to Catch Up

Despite an already strong run, Super Group (SGHC) Limited (NYSE:SGHC) shares have been powering on, with a gain of 48% in the last thirty days. The last month tops off a massive increase of 105% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Super Group (SGHC)'s P/S ratio of 1.9x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in the United States is also close to 1.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Super Group (SGHC)

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

With revenue growth that's inferior to most other companies of late, Super Group (SGHC) has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. 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 Super Group (SGHC) will help you uncover what's on the horizon.

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

The only time you'd be comfortable seeing a P/S like Super Group (SGHC)'s is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 26% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 7.3% per annum during the coming three years according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 12% per annum, which is noticeably more attractive.

With this in mind, we find it intriguing that Super Group (SGHC)'s P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Super Group (SGHC)'s P/S?

Its shares have lifted substantially and now Super Group (SGHC)'s P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

When you consider that Super Group (SGHC)'s revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be 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.

Plus, you should also learn about these 2 warning signs we've spotted with Super Group (SGHC).

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.