Saga plc (LON:SAGA) Shares Fly 26% But Investors Aren't Buying For Growth
Despite an already strong run, Saga plc (LON:SAGA) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 161% following the latest surge, making investors sit up and take notice.
Even after such a large jump in price, given about half the companies operating in the United Kingdom's Insurance industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider Saga as an attractive investment with its 0.8x 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.
View our latest analysis for Saga
How Saga Has Been Performing
Saga certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Saga.What Are Revenue Growth Metrics Telling Us About The Low P/S?
Saga's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The latest three year period has also seen a 16% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 6.1% over the next year. With the industry predicted to deliver 23% growth, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why Saga'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 Key Takeaway
Despite Saga's share price climbing recently, its P/S still lags most other companies. 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.
As we suspected, our examination of Saga's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.
Plus, you should also learn about this 1 warning sign we've spotted with Saga.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.