Vincit Oyj's (HEL:VINCIT) Low P/S No Reason For Excitement

When close to half the companies operating in the Software industry in Finland have price-to-sales ratios (or "P/S") above 2.1x, you may consider Vincit Oyj (HEL:VINCIT) as an attractive investment 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 limited.

See our latest analysis for Vincit Oyj

What Does Vincit Oyj's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Vincit Oyj'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.

Want the full picture on analyst estimates for the company? Then our free report on Vincit Oyj will help you uncover what's on the horizon.

How Is Vincit Oyj's Revenue Growth Trending?

In order to justify its P/S ratio, Vincit Oyj would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. Still, the latest three year period has seen an excellent 47% overall rise in revenue, in spite of its unsatisfying short-term performance. 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.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 6.0% as estimated by the only analyst watching the company. That's not great when the rest of the industry is expected to grow by 16%.

With this information, we are not surprised that Vincit Oyj is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does Vincit Oyj's P/S Mean For Investors?

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.

As we suspected, our examination of Vincit Oyj's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Vincit Oyj's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Vincit Oyj (at least 1 which is significant), and understanding them should be part of your investment process.

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.