Yahoo Finance Investor Optimism Abounds Aegis Brands Inc. (TSE:AEG) But Growth Is Lacking
It's not a stretch to say that Aegis Brands Inc.'s (TSE:AEG) price-to-sales (or "P/S") ratio of 2.3x right now seems quite "middle-of-the-road" for companies in the Hospitality industry in Canada, where the median P/S ratio is around 2.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
View our latest analysis for Aegis Brands
What Does Aegis Brands' Recent Performance Look Like?
With revenue growth that's exceedingly strong of late, Aegis Brands has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S 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.
Although there are no analyst estimates available for Aegis Brands, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Is There Some Revenue Growth Forecasted For Aegis Brands?
Aegis Brands' 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 39% last year. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Comparing that to the industry, which is predicted to deliver 165% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
With this information, we find it interesting that Aegis Brands is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
What We Can Learn From Aegis Brands' P/S?
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
We've established that Aegis Brands' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.
You should always think about risks. Case in point, we've spotted 4 warning signs for Aegis Brands you should be aware of, and 3 of them are a bit concerning.
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.
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