Positive Sentiment Still Eludes Verbrec Limited (ASX:VBC) Following 33% Share Price Slump

Verbrec Limited (ASX:VBC) shareholders that were waiting for something to happen have been dealt a blow with a 33% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 17% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Verbrec's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Australia is also close to 0.6x. 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 Verbrec

What Does Verbrec's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Verbrec's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Some Revenue Growth Forecasted For Verbrec?

Verbrec's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 21%. As a result, revenue from three years ago have also fallen 22% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 28% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 12%, which is noticeably less attractive.

In light of this, it's curious that Verbrec's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Verbrec's P/S?

Following Verbrec's share price tumble, its P/S is just clinging on to the industry median P/S. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Verbrec currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Verbrec that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.