Super Group Limited (JSE:SPG) Shares Fly 26% But Investors Aren't Buying For Growth

Super Group Limited (JSE:SPG) shareholders have had their patience rewarded with a 26% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 4.4% isn't as impressive.

In spite of the firm bounce in price, given about half the companies operating in South Africa's Specialty Retail industry have price-to-sales ratios (or "P/S") above 0.8x, you may still consider Super Group as an attractive investment with its 0.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Super Group

How Has Super Group Performed Recently?

Recent revenue growth for Super Group has been in line with the industry. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Super Group.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a decent 4.6% gain to the company's revenues. Pleasingly, revenue has also lifted 64% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 3.5% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 9.3% each year, which is noticeably more attractive.

With this in consideration, its clear as to why Super Group's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Despite Super Group's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of Super Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Super Group has 5 warning signs (and 1 which is potentially serious) we think you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.