Even With A 31% Surge, Cautious Investors Are Not Rewarding Kudelski SA's (VTX:KUD) Performance Completely

Kudelski SA (VTX:KUD) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 39% in the last twelve months.

Although its price has surged higher, Kudelski may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Electronic industry in Switzerland have P/S ratios greater than 1.5x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Kudelski

What Does Kudelski's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Kudelski's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Kudelski's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.5%. The last three years don't look nice either as the company has shrunk revenue by 2.6% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should demonstrate the company's robustness, generating growth of 10% as estimated by the three analysts watching the company. With the rest of the industry predicted to shrink by 0.3%, that would be a fantastic result.

With this information, we find it very odd that Kudelski is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the contrarian forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Kudelski's P/S

Kudelski's stock price has surged recently, but its but its P/S still remains modest. 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.

Our examination of Kudelski's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't contributing to its P/S anywhere near as much as we would have predicted. 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. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. So, the risk of a price drop looks to be subdued, but investors seem to think future revenue could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Kudelski (1 shouldn't be ignored!) that you should be aware of before investing here.

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.