Hipermarc S.A. (SNSE:HIPERMARC) Soars 120% But It's A Story Of Risk Vs Reward

Hipermarc S.A. (SNSE:HIPERMARC) shares have had a really impressive month, gaining 120% after a shaky period beforehand. The annual gain comes to 165% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think Hipermarc's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Chile's Consumer Retailing industry is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Hipermarc

What Does Hipermarc's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Hipermarc has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S 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 Hipermarc, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 31% 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. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 9.8%, the most recent medium-term revenue trajectory is noticeably more alluring

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

What Does Hipermarc's P/S Mean For Investors?

Hipermarc appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We didn't quite envision Hipermarc's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 2 warning signs for Hipermarc (1 is a bit unpleasant!) that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.