Verbio SE's (ETR:VBK) Shares Leap 27% Yet They're Still Not Telling The Full Story

Verbio SE (ETR:VBK) shareholders have had their patience rewarded with a 27% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 32% over that time.

Although its price has surged higher, Verbio's price-to-sales (or "P/S") ratio of 0.5x might still make it look like a buy right now compared to the Oil and Gas industry in Germany, where around half of the companies have P/S ratios above 1.6x and even P/S above 181x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Check out our latest analysis for Verbio

What Does Verbio's Recent Performance Look Like?

With revenue that's retreating more than the industry's average of late, Verbio has been very sluggish. It seems that many are expecting the dismal revenue performance to persist, which has repressed the P/S. You'd much rather the company improve its revenue performance if you still believe in the business. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Keen to find out how analysts think Verbio's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Verbio's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 3.7% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue growth will be highly resilient over the next year growing by 19%. Meanwhile, the broader industry is forecast to contract by 0.9%, which would indicate the company is doing very well.

With this information, we find it very odd that Verbio 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.

What We Can Learn From Verbio's P/S?

Despite Verbio's share price climbing recently, its P/S still lags most other companies. 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.

Our look into Verbio's analyst forecasts has shown that it could be trading at a significant discount in terms of P/S, as it is expected to far outperform the industry. There could be some major unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Verbio, and understanding should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.