TPG Inc.'s (NASDAQ:TPG) Low P/S No Reason For Excitement

With a price-to-sales (or "P/S") ratio of 1.7x TPG Inc. (NASDAQ:TPG) may be sending bullish signals at the moment, given that almost half of all the Capital Markets companies in the United States have P/S ratios greater than 3x and even P/S higher than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for TPG

What Does TPG's P/S Mean For Shareholders?

Recent revenue growth for TPG has been in line with the industry. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on TPG.

How Is TPG's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as TPG's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 21%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 50% overall. 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 eight analysts covering the company suggest revenue growth is heading into negative territory, declining 23% over the next year. That's not great when the rest of the industry is expected to grow by 6.6%.

With this in consideration, we find it intriguing that TPG's P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does TPG's P/S Mean For Investors?

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.

It's clear to see that TPG maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for TPG that you should be aware of.

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).

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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.