Solocal Group S.A. (EPA:LOCAL) Stock Catapults 27% Though Its Price And Business Still Lag The Industry

Solocal Group S.A. (EPA:LOCAL) shares have had a really impressive month, gaining 27% after a shaky period beforehand. But the last month did very little to improve the 93% share price decline over the last year.

Even after such a large jump in price, Solocal Group's price-to-sales (or "P/S") ratio of 0.3x might still make it look like a buy right now compared to the Interactive Media and Services industry in France, where around half of the companies have P/S ratios above 1.5x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Solocal Group

What Does Solocal Group's Recent Performance Look Like?

Solocal Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor 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 Solocal Group.

How Is Solocal Group's Revenue Growth Trending?

Solocal Group'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.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.0%. The last three years don't look nice either as the company has shrunk revenue by 22% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue growth is heading into negative territory, declining 0.6% over the next year. Meanwhile, the broader industry is forecast to expand by 10%, which paints a poor picture.

With this in consideration, we find it intriguing that Solocal Group's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Solocal Group's stock price has surged recently, but its but its P/S still remains modest. 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.

It's clear to see that Solocal Group maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Solocal Group's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Solocal Group (of which 4 are a bit concerning!) you should know about.

If you're unsure about the strength of Solocal Group'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.