Australian Vintage Ltd (ASX:AVG) Stock Rockets 28% But Many Are Still Ignoring The Company

Australian Vintage Ltd (ASX:AVG) shares have continued their recent momentum with a 28% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 19% in the last twelve months.

Although its price has surged higher, given about half the companies operating in Australia's Beverage industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Australian Vintage as an attractive investment with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Australian Vintage

What Does Australian Vintage's Recent Performance Look Like?

Australian Vintage could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Australian Vintage's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Australian Vintage's to be considered reasonable.

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 1.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 1.1% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue growth will show minor resilience over the next year growing only by 4.1%. Meanwhile, the broader industry is forecast to contract by 0.7%, which would indicate the company is doing better than the majority of its peers.

In light of this, it's quite peculiar that Australian Vintage's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the contrarian forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Despite Australian Vintage's share price climbing recently, its P/S still lags most other companies. 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've established that Australian Vintage currently trades on a much lower than expected P/S since its growth forecasts are potentially beating a struggling industry. When we see a superior revenue outlook with some actual growth, we can only assume investor uncertainty is what's been suppressing the P/S figures. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. So, the risk of a price drop looks to be subdued, but investors seem to think future revenue could see a lot of volatility.

You always need to take note of risks, for example - Australian Vintage has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Australian Vintage's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.