FLIGHT SOLUTIONS Inc.'s (TSE:3753) 30% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

Simply Wall St · 10/17 22:10

FLIGHT SOLUTIONS Inc. (TSE:3753) shareholders won't be pleased to see that the share price has had a very rough month, dropping 30% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 46% in that time.

In spite of the heavy fall in price, it's still not a stretch to say that FLIGHT SOLUTIONS' price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the IT industry in Japan, where the median P/S ratio is around 1.1x. 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.

See our latest analysis for FLIGHT SOLUTIONS

ps-multiple-vs-industry
TSE:3753 Price to Sales Ratio vs Industry October 17th 2024

How Has FLIGHT SOLUTIONS Performed Recently?

The recent revenue growth at FLIGHT SOLUTIONS would have to be considered satisfactory if not spectacular. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on FLIGHT SOLUTIONS will help you shine a light on its historical performance.

How Is FLIGHT SOLUTIONS' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like FLIGHT SOLUTIONS' is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.6% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 5.8% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 5.6% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that FLIGHT SOLUTIONS' P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Following FLIGHT SOLUTIONS' share price tumble, its P/S is just clinging on to the industry median P/S. 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.

We find it unexpected that FLIGHT SOLUTIONS trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

We don't want to rain on the parade too much, but we did also find 3 warning signs for FLIGHT SOLUTIONS (2 make us uncomfortable!) that you need to be mindful 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).