OVH Groupe S.A. (EPA:OVH) Stock's 32% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Unfortunately for some shareholders, the OVH Groupe S.A. (EPA:OVH) share price has dived 32% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 57% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about OVH Groupe's P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the IT industry in France is also close to 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for OVH Groupe

What Does OVH Groupe's P/S Mean For Shareholders?

Recent times have been advantageous for OVH Groupe as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic 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 OVH Groupe.

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

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

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Pleasingly, revenue has also lifted 44% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 11% as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 4.7%, which is noticeably less attractive.

With this in consideration, we find it intriguing that OVH Groupe's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

With its share price dropping off a cliff, the P/S for OVH Groupe looks to be in line with the rest of the IT industry. 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.

Despite enticing revenue growth figures that outpace the industry, OVH Groupe's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

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

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.