Latécoère S.A. (EPA:LAT) Surges 31% Yet Its Low P/S Is No Reason For Excitement

Despite an already strong run, Latécoère S.A. (EPA:LAT) shares have been powering on, with a gain of 31% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 25% over that time.

Although its price has surged higher, Latécoère may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Aerospace & Defense industry in France have P/S ratios greater than 2x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Latécoère

What Does Latécoère's P/S Mean For Shareholders?

Latécoère certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

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

Latécoère's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 18%. Pleasingly, revenue has also lifted 85% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 5.9% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 12% growth forecast for the broader industry.

In light of this, it's understandable that Latécoère's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Latécoère's P/S

The latest share price surge wasn't enough to lift Latécoère's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As expected, our analysis of Latécoère's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Latécoère (3 are potentially serious) 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.