With a median price-to-sales (or "P/S") ratio of close to 1.1x in the Insurance industry in the United States, you could be forgiven for feeling indifferent about SiriusPoint Ltd.'s (NYSE:SPNT) P/S ratio of 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
How SiriusPoint Has Been Performing
The recent revenue growth at SiriusPoint would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.
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 SiriusPoint's earnings, revenue and cash flow.What Are Revenue Growth Metrics Telling Us About The P/S?
There's an inherent assumption that a company should be matching the industry for P/S ratios like SiriusPoint's to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 4.6% last year. Pleasingly, revenue has also lifted 68% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.
Comparing that to the industry, which is only predicted to deliver 4.8% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.
In light of this, it's curious that SiriusPoint's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.
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.
To our surprise, SiriusPoint revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. 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.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for SiriusPoint that you should be aware of.
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.
