Victory Square Technologies Inc. (CSE:VST) Soars 53% But It's A Story Of Risk Vs Reward

Victory Square Technologies Inc. (CSE:VST) shares have continued their recent momentum with a 53% gain in the last month alone. The last 30 days were the cherry on top of the stock's 712% gain in the last year, which is nothing short of spectacular.

Even after such a large jump in price, it's still not a stretch to say that Victory Square Technologies' price-to-sales (or "P/S") ratio of 3.9x right now seems quite "middle-of-the-road" compared to the Capital Markets industry in Canada, where the median P/S ratio is around 4.2x. 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.

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View our latest analysis for Victory Square Technologies

What Does Victory Square Technologies' Recent Performance Look Like?

Recent times have been quite advantageous for Victory Square Technologies as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. 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.

Although there are no analyst estimates available for Victory Square Technologies, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Victory Square Technologies' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 39% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to shrink 27% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.

With this information, we find it odd that Victory Square Technologies is trading at a fairly similar P/S to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Its shares have lifted substantially and now Victory Square Technologies' P/S is back within range of the industry median. 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.

As mentioned previously, Victory Square Technologies currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. When we see a history of positive growth in a struggling industry, but only an average P/S, we assume potential risks are what might be placing pressure on the P/S ratio. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. It appears some are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Victory Square Technologies (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.