Why Investors Shouldn't Be Surprised By Elior Group SA's (EPA:ELIOR) 41% Share Price Plunge

Elior Group SA (EPA:ELIOR) shares have had a horrible month, losing 41% after a relatively good period beforehand. Indeed, the recent drop has reduced its annual gain to a relatively sedate 6.4% over the last twelve months.

Following the heavy fall in price, Elior Group's price-to-sales (or "P/S") ratio of 0.1x might make it look like a buy right now compared to the Hospitality industry in France, where around half of the companies have P/S ratios above 0.9x and even P/S above 3x are quite common. 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 Elior Group

How Has Elior Group Performed Recently?

With revenue growth that's superior to most other companies of late, Elior Group has been doing relatively well. 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.

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

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

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. The strong recent performance means it was also able to grow revenue by 64% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 3.2% per annum as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 7.0% each year, which is noticeably more attractive.

With this in consideration, its clear as to why Elior Group's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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.

As expected, our analysis of Elior Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Elior Group.

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.