Investors Interested In KAP Limited's (JSE:KAP) Revenues

There wouldn't be many who think KAP Limited's (JSE:KAP) price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S for the Industrials industry in South Africa is similar at about 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for KAP

How Has KAP Performed Recently?

Recent times haven't been great for KAP as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think KAP's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For KAP?

The only time you'd be comfortable seeing a P/S like KAP's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 5.9% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 37% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 4.7% per year as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 3.8% per year, which is not materially different.

With this in mind, it makes sense that KAP's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

A KAP's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Industrials industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Having said that, be aware KAP is showing 4 warning signs in our investment analysis, and 1 of those is a bit concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.