Why Investors Shouldn't Be Surprised By Verve Group SE's (ETR:M8G) 26% Share Price Surge

Despite an already strong run, Verve Group SE (ETR:M8G) shares have been powering on, with a gain of 26% in the last thirty days. This latest share price bounce rounds out a remarkable 355% gain over the last twelve months.

Since its price has surged higher, given close to half the companies operating in Germany's Media industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider Verve Group as a stock to potentially avoid with its 2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Verve Group

What Does Verve Group's P/S Mean For Shareholders?

Recent revenue growth for Verve Group has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Verve Group's Revenue Growth Trending?

Verve Group's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a decent 7.5% gain to the company's revenues. Pleasingly, revenue has also lifted 81% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 16% each year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.6% per year, which is noticeably less attractive.

In light of this, it's understandable that Verve Group's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Verve Group's P/S

The large bounce in Verve Group's shares has lifted the company's P/S handsomely. 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've established that Verve Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Media industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Verve Group (1 can't be ignored) you should be aware of.

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.