USP Group Limited (SGX:BRS) shares have had a horrible month, losing 28% after a relatively good period beforehand.    The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 27% in that time.  

Even after such a large drop in price, it's still not a stretch to say that USP Group's price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Trade Distributors industry in Singapore, where the median P/S ratio is around 0.3x.  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.    

Check out our latest analysis for USP Group

SGX:BRS Price to Sales Ratio vs Industry January 19th 2024

How Has USP Group Performed Recently?

For instance, USP Group's receding revenue in recent times would have to be some food for thought.   It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling.  If not, then existing shareholders may be a little nervous about the viability 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 USP Group's earnings, revenue and cash flow.  

Do Revenue Forecasts Match The P/S Ratio?  

There's an inherent assumption that a company should be matching the industry for P/S ratios like USP Group's to be considered reasonable.  

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 10%.   This means it has also seen a slide in revenue over the longer-term as revenue is down 6.4% 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 2.9% 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 USP Group's 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.  Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.  

What We Can Learn From USP Group's P/S?

Following USP Group's 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.

Our look at USP Group revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set 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.  If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for USP Group 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).

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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.