With a price-to-sales (or "P/S") ratio of 0.8x SATS Ltd. (SGX:S58) may be sending bullish signals at the moment, given that almost half of all the Infrastructure companies in Singapore have P/S ratios greater than 2x and even P/S higher than 4x are not unusual.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.  

SGX:S58 Price to Sales Ratio vs Industry June 4th 2024

What Does SATS' P/S Mean For Shareholders?

Recent times have been advantageous for SATS as its revenues have been rising faster than most other companies.   It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio.  If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.    

Keen to find out how analysts think SATS' 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, SATS would need to produce sluggish growth that's trailing the industry.  

If we review the last year of revenue growth, the company posted a terrific increase of 193%.   Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth.  So we can start by confirming that the company has done a tremendous job of growing revenue over that time.  

Looking ahead now, revenue is anticipated to climb by 6.3% per year during the coming three years according to the eight analysts following the company.  Meanwhile, the rest of the industry is forecast to expand by 13% per year, which is noticeably more attractive.

With this in consideration, its clear as to why SATS' 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 Bottom Line On SATS' P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As expected, our analysis of SATS' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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.  Unless these conditions improve, they will continue to form a barrier for the share price around these levels.    

Having said that, be aware  SATS is showing 1 warning sign in our investment analysis, you should know about.  

If these risks are making you reconsider your opinion on SATS, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.