Unpleasant Surprises Could Be In Store For Liberty Global Ltd.'s (NASDAQ:LBTY.A) Shares
There wouldn't be many who think Liberty Global Ltd.'s (NASDAQ:LBTY.A) price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S for the Telecom industry in the United States is similar at about 1.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for Liberty Global
What Does Liberty Global's P/S Mean For Shareholders?
Recent times have been advantageous for Liberty Global as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. 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 not quite in favour.
Want the full picture on analyst estimates for the company? Then our free report on Liberty Global will help you uncover what's on the horizon.What Are Revenue Growth Metrics Telling Us About The P/S?
Liberty Global's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, we see that the company grew revenue by an impressive 171% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 34% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 0.4% per annum over the next three years. With the industry predicted to deliver 107% growth per year, the company is positioned for a weaker revenue result.
With this information, we find it interesting that Liberty Global is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
The Final Word
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Given that Liberty Global's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Liberty Global that you should be aware of.
If you're unsure about the strength of Liberty Global's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.