Yahoo Finance Raiz Invest Limited (ASX:RZI) Could Be Riskier Than It Looks
Raiz Invest Limited's (ASX:RZI) price-to-sales (or "P/S") ratio of 2.1x might make it look like a strong buy right now compared to the Capital Markets industry in Australia, where around half of the companies have P/S ratios above 4.4x and even P/S above 20x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Raiz Invest
How Has Raiz Invest Performed Recently?
Recent times have been pleasing for Raiz Invest as its revenue has risen in spite of the industry's average revenue going into reverse. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Keen to find out how analysts think Raiz Invest's future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, Raiz Invest would need to produce anemic growth that's substantially trailing the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 8.1%. This was backed up an excellent period prior to see revenue up by 143% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.
Looking ahead now, revenue is anticipated to climb by 6.5% per annum during the coming three years according to the only analyst following the company. With the industry only predicted to deliver 3.3% per annum, the company is positioned for a stronger revenue result.
In light of this, it's peculiar that Raiz Invest's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
What We Can Learn From Raiz Invest's P/S?
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
To us, it seems Raiz Invest currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
You need to take note of risks, for example - Raiz Invest has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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