Solutions 30 SE's (EPA:S30) Share Price Is Matching Sentiment Around Its Revenues

When close to half the companies operating in the IT industry in France have price-to-sales ratios (or "P/S") above 0.9x, you may consider Solutions 30 SE (EPA:S30) as an attractive investment with its 0.1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Solutions 30

How Solutions 30 Has Been Performing

Solutions 30's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on Solutions 30 will be hoping that this isn't the case.

Keen to find out how analysts think Solutions 30's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Solutions 30's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Solutions 30's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.7% last year. The latest three year period has also seen a 17% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue growth is heading into negative territory, declining 1.8% over the next year. Meanwhile, the broader industry is forecast to expand by 1.0%, which paints a poor picture.

With this information, we are not surprised that Solutions 30 is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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 Solutions 30's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Solutions 30's poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Solutions 30 that you should be aware of.

If these risks are making you reconsider your opinion on Solutions 30, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.