Market Might Still Lack Some Conviction On Exasol AG (ETR:EXL) Even After 26% Share Price Boost

Exasol AG (ETR:EXL) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, there still wouldn't be many who think Exasol's price-to-sales (or "P/S") ratio of 2.4x is worth a mention when the median P/S in Germany's Software industry is similar at about 1.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Exasol

How Exasol Has Been Performing

Recent revenue growth for Exasol has been in line with the industry. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. Those who are bullish on Exasol will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

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

Is There Some Revenue Growth Forecasted For Exasol?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. The latest three year period has also seen an excellent 54% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 19% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 7.9% per year, which is noticeably less attractive.

With this in consideration, we find it intriguing that Exasol's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Exasol's P/S

Its shares have lifted substantially and now Exasol's P/S is back within range of the industry median. 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.

Looking at Exasol'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. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

You always need to take note of risks, for example - Exasol has 4 warning signs we think you should be aware of.

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.