Verbio SE's (ETR:VBK) Shares Leap 43% Yet They're Still Not Telling The Full Story

Verbio SE (ETR:VBK) shares have had a really impressive month, gaining 43% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 4.4% isn't as attractive.

Although its price has surged higher, Verbio may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Oil and Gas industry in Germany have P/S ratios greater than 1.3x and even P/S higher than 4x 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.

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View our latest analysis for Verbio

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

While the industry has experienced revenue growth lately, Verbio's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.7%. As a result, revenue from three years ago have also fallen 13% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 13% per year during the coming three years according to the four analysts following the company. With the industry only predicted to deliver 3.9% per year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Verbio's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

The latest share price surge wasn't enough to lift Verbio's P/S close to the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To us, it seems Verbio currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you settle on your opinion, we've discovered 1 warning sign for Verbio that you should be aware of.

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