There's Reason For Concern Over PS International Group Ltd.'s (NASDAQ:PSIG) Massive 37% Price Jump

PS International Group Ltd. (NASDAQ:PSIG) shareholders have had their patience rewarded with a 37% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 45% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that PS International Group's price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Logistics industry in the United States, where the median P/S ratio is around 0.6x. 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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Check out our latest analysis for PS International Group

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

As an illustration, revenue has deteriorated at PS International Group over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for PS International Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is PS International Group's Revenue Growth Trending?

In order to justify its P/S ratio, PS International Group would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 38%. As a result, revenue from three years ago have also fallen 33% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for a contraction of 0.01% shows the industry is more attractive on an annualised basis regardless.

In light of this, it's somewhat peculiar that PS International Group's P/S sits in line with the majority of other companies. In general, when revenue shrink rapidly the P/S often shrinks too, which could set up shareholders for future disappointment. There's potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

The Bottom Line On PS International Group's P/S

PS International Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of PS International Group revealed its sharp three-year contraction in revenue isn't impacting its P/S as much as we would have predicted, given the industry is set to shrink less severely. When we see below average revenue, we suspect the share price is at risk of declining, sending the moderate P/S lower. We're also cautious about the company's ability to stay its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. This would place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 3 warning signs for PS International Group (of which 1 is potentially serious!) you should know about.

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.