CommScope Holding Company, Inc.'s (NASDAQ:COMM) Shares Leap 57% Yet They're Still Not Telling The Full Story

Those holding CommScope Holding Company, Inc. (NASDAQ:COMM) shares would be relieved that the share price has rebounded 57% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. This latest share price bounce rounds out a remarkable 398% gain over the last twelve months.

In spite of the firm bounce in price, CommScope Holding Company may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Communications industry in the United States have P/S ratios greater than 2x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for CommScope Holding Company

How Has CommScope Holding Company Performed Recently?

CommScope Holding Company certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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How Is CommScope Holding Company's Revenue Growth Trending?

In order to justify its P/S ratio, CommScope Holding Company would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 49% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 15% over the next year. That's shaping up to be materially higher than the 9.0% growth forecast for the broader industry.

With this information, we find it odd that CommScope Holding Company is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From CommScope Holding Company's P/S?

Despite CommScope Holding Company's share price climbing recently, its P/S still lags most other companies. 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.

To us, it seems CommScope Holding Company currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with CommScope Holding Company (at least 2 which are a bit concerning), and understanding them should be part of your investment process.

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.