Subdued Growth No Barrier To The Carlyle Group Inc. (NASDAQ:CG) With Shares Advancing 26%

The Carlyle Group Inc. (NASDAQ:CG) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Notwithstanding the latest gain, the annual share price return of 9.3% isn't as impressive.

Although its price has surged higher, it's still not a stretch to say that Carlyle Group's price-to-sales (or "P/S") ratio of 3.3x right now seems quite "middle-of-the-road" compared to the Capital Markets industry in the United States, where the median P/S ratio is around 3.2x. 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.

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View our latest analysis for Carlyle Group

How Carlyle Group Has Been Performing

With revenue growth that's superior to most other companies of late, Carlyle Group has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Carlyle Group?

Carlyle Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 127%. Still, revenue has fallen 34% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue growth is heading into negative territory, declining 15% over the next year. With the industry predicted to deliver 2.1% growth, that's a disappointing outcome.

With this in consideration, we think it doesn't make sense that Carlyle Group's P/S is closely matching its industry peers. 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 these declining revenues are likely to weigh on the share price eventually.

The Final Word

Carlyle Group's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

While Carlyle Group's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

You need to take note of risks, for example - Carlyle Group has 3 warning signs (and 1 which is concerning) 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.