It's Down 44% But Sirma Group Holding AD (BUL:SGH) Could Be Riskier Than It Looks
Sirma Group Holding AD (BUL:SGH) shareholders won't be pleased to see that the share price has had a very rough month, dropping 44% and undoing the prior period's positive performance. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.
In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Sirma Group Holding AD's P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the IT industry in Bulgaria is also close to 0.9x. 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.
View our latest analysis for Sirma Group Holding AD
What Does Sirma Group Holding AD's P/S Mean For Shareholders?
With revenue growth that's exceedingly strong of late, Sirma Group Holding AD has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. 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.
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 Sirma Group Holding AD's earnings, revenue and cash flow.Do Revenue Forecasts Match The P/S Ratio?
Sirma Group Holding AD'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.
If we review the last year of revenue growth, the company posted a terrific increase of 44%. The latest three year period has also seen an excellent 61% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 4.1% shows it's noticeably more attractive.
With this information, we find it interesting that Sirma Group Holding AD is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.
The Final Word
With its share price dropping off a cliff, the P/S for Sirma Group Holding AD looks to be in line with the rest of the IT industry. 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.
We didn't quite envision Sirma Group Holding AD's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Sirma Group Holding AD (at least 2 which are concerning), and understanding these should be part of your investment process.
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).
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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.