Yahoo Finance Revenues Working Against Althea Group Holdings Limited's (ASX:AGH) Share Price
Althea Group Holdings Limited's (ASX:AGH) price-to-sales (or "P/S") ratio of 0.6x might make it look like a strong buy right now compared to the Pharmaceuticals industry in Australia, where around half of the companies have P/S ratios above 8.2x and even P/S above 30x 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.
View our latest analysis for Althea Group Holdings
What Does Althea Group Holdings' Recent Performance Look Like?
Revenue has risen firmly for Althea Group Holdings recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Althea Group Holdings will help you shine a light on its historical performance.
Is There Any Revenue Growth Forecasted For Althea Group Holdings?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like Althea Group Holdings' to be considered reasonable.
Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
This is in contrast to the rest of the industry, which is expected to grow by 95% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's understandable that Althea Group Holdings' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Bottom Line On Althea Group Holdings' 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.
Our examination of Althea Group Holdings confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.
It is also worth noting that we have found 5 warning signs for Althea Group Holdings (3 are a bit unpleasant!) that you need to take into consideration.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
