Investors Aren't Buying Swift TV Ltd's (ASX:STV) Revenues
When you see that almost half of the companies in the Entertainment industry in Australia have price-to-sales ratios (or "P/S") above 2.2x, Swift TV Ltd (ASX:STV) looks to be giving off some buy signals with its 0.6x 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 Swift TV
How Has Swift TV Performed Recently?
As an illustration, revenue has deteriorated at Swift TV over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
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 Swift TV's earnings, revenue and cash flow.Do Revenue Forecasts Match The Low P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as low as Swift TV's is when the company's growth is on track to lag the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.5%. As a result, revenue from three years ago have also fallen 4.2% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 19% shows it's an unpleasant look.
With this in mind, we understand why Swift TV's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.
What We Can Learn From Swift TV's P/S?
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Swift TV revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Swift TV, and understanding them should be part of your investment process.
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.