A Piece Of The Puzzle Missing From Audax Renovables, S.A.'s (BME:ADX) 26% Share Price Climb

Audax Renovables, S.A. (BME:ADX) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 40%.

Although its price has surged higher, when around half the companies operating in Spain's Renewable Energy industry have price-to-sales ratios (or "P/S") above 2.7x, you may still consider Audax Renovables as an incredibly enticing stock to check out with its 0.3x 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 so limited.

View our latest analysis for Audax Renovables

What Does Audax Renovables' Recent Performance Look Like?

Audax Renovables has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. 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 Audax Renovables' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Audax Renovables' is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 137% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 2.6% each year over the next three years. With the industry predicted to deliver 2.9% growth each year, the company is positioned for a comparable revenue result.

In light of this, it's peculiar that Audax Renovables' P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Audax Renovables' P/S

Shares in Audax Renovables have risen appreciably however, its P/S is still subdued. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It looks to us like the P/S figures for Audax Renovables remain low despite growth that is expected to be in line with other companies in the industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You always need to take note of risks, for example - Audax Renovables has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Audax Renovables' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.