The Market Doesn't Like What It Sees From Claranova SE's (EPA:CLA) Revenues Yet As Shares Tumble 26%

To the annoyance of some shareholders, Claranova SE (EPA:CLA) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Still, a bad month hasn't completely ruined the past year with the stock gaining 26%, which is great even in a bull market.

After such a large drop in price, Claranova's price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Software industry in France, where around half of the companies have P/S ratios above 1.8x and even P/S above 6x 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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Check out our latest analysis for Claranova

What Does Claranova's Recent Performance Look Like?

Recent times haven't been great for Claranova as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Claranova.

How Is Claranova's Revenue Growth Trending?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Likewise, not much has changed from three years ago as revenue have been stuck during that whole time. Therefore, it's fair to say that revenue growth has definitely eluded the company recently.

Shifting to the future, estimates from the two analysts covering the company suggest revenue growth is heading into negative territory, declining 50% over the next year. Meanwhile, the broader industry is forecast to expand by 5.1%, which paints a poor picture.

With this information, we are not surprised that Claranova is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. 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

The southerly movements of Claranova's shares means its P/S is now sitting at a pretty low level. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Claranova's P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Plus, you should also learn about these 2 warning signs we've spotted with Claranova.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.