The Price Is Right For Helios Towers plc (LON:HTWS)

Helios Towers plc's (LON:HTWS) price-to-sales (or "P/S") ratio of 2.8x may not look like an appealing investment opportunity when you consider close to half the companies in the Telecom industry in the United Kingdom have P/S ratios below 1.1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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Check out our latest analysis for Helios Towers

How Has Helios Towers Performed Recently?

With revenue growth that's inferior to most other companies of late, Helios Towers has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Helios Towers.

Is There Enough Revenue Growth Forecasted For Helios Towers?

In order to justify its P/S ratio, Helios Towers would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 7.8% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 63% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 8.3% per annum as estimated by the seven analysts watching the company. With the industry only predicted to deliver 1.7% per year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Helios Towers' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Helios Towers maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Telecom industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Helios Towers (1 makes us a bit uncomfortable!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Helios Towers, 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.