Revenues Tell The Story For OVH Groupe S.A. (EPA:OVH) As Its Stock Soars 45%

OVH Groupe S.A. (EPA:OVH) shareholders would be excited to see that the share price has had a great month, posting a 45% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 3.0% over the last year.

Following the firm bounce in price, you could be forgiven for thinking OVH Groupe is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.6x, considering almost half the companies in France's IT industry have P/S ratios below 0.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

See our latest analysis for OVH Groupe

How Has OVH Groupe Performed Recently?

OVH Groupe certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think OVH Groupe's future stacks up against the industry? In that case, our free report is a great place to start .

Is There Enough Revenue Growth Forecasted For OVH Groupe?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. This was backed up an excellent period prior to see revenue up by 48% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 12% over the next year. That's shaping up to be materially higher than the 2.0% growth forecast for the broader industry.

With this information, we can see why OVH Groupe is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From OVH Groupe's P/S?

OVH Groupe's P/S is on the rise since its shares have risen strongly. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of OVH Groupe's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for OVH Groupe that you should be aware of.

If these risks are making you reconsider your opinion on OVH Groupe, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.