AUTO1 Group SE's (ETR:AG1) Shares Leap 26% Yet They're Still Not Telling The Full Story

AUTO1 Group SE (ETR:AG1) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last month tops off a massive increase of 213% in the last year.

Even after such a large jump in price, it's still not a stretch to say that AUTO1 Group's price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in Germany, where the median P/S ratio is around 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Our free stock report includes 3 warning signs investors should be aware of before investing in AUTO1 Group. Read for free now.

See our latest analysis for AUTO1 Group

What Does AUTO1 Group's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, AUTO1 Group has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think AUTO1 Group's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like AUTO1 Group's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. The latest three year period has also seen a 23% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the twelve analysts watching the company. With the industry only predicted to deliver 6.9% per annum, the company is positioned for a stronger revenue result.

With this information, we find it interesting that AUTO1 Group is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From AUTO1 Group's P/S?

Its shares have lifted substantially and now AUTO1 Group's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Looking at AUTO1 Group's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 3 warning signs for AUTO1 Group (2 shouldn't be ignored!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.