Kalray S.A. (EPA:ALKAL) Shares Fly 78% But Investors Aren't Buying For Growth

Kalray S.A. (EPA:ALKAL) shareholders are no doubt pleased to see that the share price has bounced 78% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 91% share price decline over the last year.

In spite of the firm bounce in price, considering around half the companies operating in France's Semiconductor industry have price-to-sales ratios (or "P/S") above 1.4x, you may still consider Kalray as an solid investment opportunity with its 0.5x 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 Kalray

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

With only a limited decrease in revenue compared to most other companies of late, Kalray has been doing relatively well. It might be that many expect the comparatively superior revenue performance to degrade substantially, which has repressed the P/S. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. In saying that, existing shareholders probably aren't pessimistic about the share price if the company's revenue continues outplaying the industry.

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

How Is Kalray's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Kalray's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.9%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

Shifting to the future, estimates from the three analysts covering the company are not good at all, suggesting revenue should decline by 25% over the next year. With the rest of the industry predicted to shrink by 5.3%, it's a sub-optimal result.

With this information, it's not too hard to see why Kalray is trading at a lower P/S in comparison. Nonetheless, with revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. Even just maintaining these prices could be difficult to achieve as the weak outlook is already weighing down the shares heavily.

The Final Word

Despite Kalray's share price climbing recently, its P/S still lags most other companies. 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.

As we suspected, our examination of Kalray's analyst forecasts revealed that its even shakier outlook against the industry is contributing factor to why its P/S is so low. With such a gloomy outlook, investors feel the potential for an improvement in revenue isn't great enough to justify paying a premium resulting in a higher P/S ratio. Although, we would be concerned whether the company can even maintain this level of performance under these tough industry conditions. For now though, it's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Kalray has 5 warning signs (and 2 which shouldn't be ignored) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.