SPAR Group, Inc. (NASDAQ:SGRP) Soars 29% But It's A Story Of Risk Vs Reward

SPAR Group, Inc. (NASDAQ:SGRP) shareholders have had their patience rewarded with a 29% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 2.4% isn't as attractive.

In spite of the firm bounce in price, SPAR Group may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Media industry in the United States have P/S ratios greater than 1x and even P/S higher than 3x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for SPAR Group

What Does SPAR Group's P/S Mean For Shareholders?

Recent revenue growth for SPAR Group has been in line with the industry. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on SPAR Group will be hoping that this isn't the case.

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

Is There Any Revenue Growth Forecasted For SPAR Group?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Fortunately, a few good years before that means that it was still able to grow revenue by 13% in total over the last three years. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 2.2% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 4.0%, which is not materially different.

In light of this, it's peculiar that SPAR Group's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

The latest share price surge wasn't enough to lift SPAR Group's P/S close to the industry median. 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.

We've seen that SPAR Group currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You should always think about risks. Case in point, we've spotted 3 warning signs for SPAR Group you should be aware of.

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.