Investors Aren't Entirely Convinced By Trematon Capital Investments Limited's (JSE:TMT) Revenues

With a price-to-sales (or "P/S") ratio of 0.7x Trematon Capital Investments Limited (JSE:TMT) may be sending very bullish signals at the moment, given that almost half of all the Real Estate companies in South Africa have P/S ratios greater than 3.2x 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 highly reduced P/S.

See our latest analysis for Trematon Capital Investments

How Has Trematon Capital Investments Performed Recently?

It looks like revenue growth has deserted Trematon Capital Investments recently, which is not something to boast about. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Trematon Capital Investments' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Trematon Capital Investments?

In order to justify its P/S ratio, Trematon Capital Investments would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. However, a few strong years before that means that it was still able to grow revenue by an impressive 41% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Comparing that to the industry, which is only predicted to deliver 3.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Trematon Capital Investments' P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Trematon Capital Investments' P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We're very surprised to see Trematon Capital Investments currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You need to take note of risks, for example - Trematon Capital Investments has 4 warning signs (and 3 which shouldn't be ignored) we think you should know about.

If these risks are making you reconsider your opinion on Trematon Capital Investments, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.