Benign Growth For Worldline SA (EPA:WLN) Underpins Stock's 28% Plummet

Worldline SA (EPA:WLN) shares have had a horrible month, losing 28% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 43% share price drop.

Following the heavy fall in price, Worldline may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.4x, considering almost half of all companies in the Diversified Financial industry in France have P/S ratios greater than 3.1x and even P/S higher than 8x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Worldline

How Worldline Has Been Performing

With its revenue growth in positive territory compared to the declining revenue of most other companies, Worldline has been doing quite well of late. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Worldline?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Worldline's to be considered reasonable.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Regardless, revenue has managed to lift by a handy 26% in aggregate from three years ago, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 2.8% each year during the coming three years according to the analysts following the company. With the industry predicted to deliver 19% growth per year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Worldline's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Worldline's P/S?

Having almost fallen off a cliff, Worldline's share price has pulled its P/S way down as well. 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.

We've established that Worldline maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

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

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

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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.