Slammed 25% Elior Group SA (EPA:ELIOR) Screens Well Here But There Might Be A Catch

Elior Group SA (EPA:ELIOR) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 37% in that time.

Following the heavy fall in price, given about half the companies operating in France's Hospitality industry have price-to-sales ratios (or "P/S") above 1.1x, you may consider Elior Group as an attractive investment with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Elior Group

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

With revenue growth that's inferior to most other companies of late, Elior Group has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Elior Group.

Is There Any Revenue Growth Forecasted For Elior Group?

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

Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 2.0% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 11% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 5.0% per year growth forecast for the broader industry.

With this in consideration, we find it intriguing that Elior Group's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does Elior Group's P/S Mean For Investors?

Elior Group's P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Elior Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Elior Group that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.