Revenues Working Against Trematon Capital Investments Limited's (JSE:TMT) Share Price Following 26% Dive

To the annoyance of some shareholders, Trematon Capital Investments Limited (JSE:TMT) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 44% in that time.

After such a large drop in price, Trematon Capital Investments' price-to-sales (or "P/S") ratio of 0.5x might make it look like a strong buy right now compared to the wider Real Estate industry in South Africa, where around half of the companies have P/S ratios above 3.3x and even P/S above 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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View our latest analysis for Trematon Capital Investments

How Trematon Capital Investments Has Been Performing

With revenue growth that's exceedingly strong of late, Trematon Capital Investments has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Trematon Capital Investments will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Trematon Capital Investments will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Trematon Capital Investments' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 35% gain to the company's top line. Pleasingly, revenue has also lifted 31% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 14% shows it's noticeably less attractive.

With this information, we can see why Trematon Capital Investments is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Trematon Capital Investments' P/S

Shares in Trematon Capital Investments have plummeted and its P/S has followed suit. 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.

As we suspected, our examination of Trematon Capital Investments revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Trematon Capital Investments has 3 warning signs (and 1 which is potentially serious) 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.