WALLIX GROUP SA (EPA:ALLIX) Stocks Shoot Up 31% But Its P/S Still Looks Reasonable

WALLIX GROUP SA (EPA:ALLIX) shares have continued their recent momentum with a 31% gain in the last month alone. The annual gain comes to 222% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking WALLIX GROUP is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.3x, considering almost half the companies in France's Software industry have P/S ratios below 2.3x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for WALLIX GROUP

What Does WALLIX GROUP's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, WALLIX GROUP has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

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

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. The latest three year period has also seen an excellent 42% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 17% per year during the coming three years according to the two analysts following the company. That's shaping up to be materially higher than the 7.7% each year growth forecast for the broader industry.

In light of this, it's understandable that WALLIX GROUP's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does WALLIX GROUP's P/S Mean For Investors?

Shares in WALLIX GROUP have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of WALLIX GROUP's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 1 warning sign for WALLIX GROUP that you should be aware of.

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.