There wouldn't be many who think Smart Parking Limited's (ASX:SPZ) price-to-sales (or "P/S") ratio of 1.9x is worth a mention when the median P/S for the Electronic industry in Australia is very similar. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Smart Parking

What Does Smart Parking's P/S Mean For Shareholders?

Smart Parking certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. 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.

Want the full picture on analyst estimates for the company? Then our free report on Smart Parking will help you uncover what's on the horizon.

How Is Smart Parking's Revenue Growth Trending?

In order to justify its P/S ratio, Smart Parking would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 54% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 30% during the coming year according to the sole analyst following the company. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Smart Parking is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Smart Parking's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Looking at Smart Parking's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Smart Parking 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).

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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