Voltabox AG's (FRA:VBX) Shares Climb 77% But Its Business Is Yet to Catch Up

Voltabox AG (FRA:VBX) shares have had a really impressive month, gaining 77% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Voltabox is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.8x, considering almost half the companies in Germany's Electrical industry have P/S ratios below 1x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Voltabox

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

Voltabox certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is Voltabox's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 63% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 42% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 9.9% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Voltabox's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

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

Voltabox's P/S is on the rise since its shares have risen strongly. 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 Voltabox revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It is also worth noting that we have found 3 warning signs for Voltabox (2 don't sit too well with us!) that you need to take into consideration.

If you're unsure about the strength of Voltabox'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.