The Market Doesn't Like What It Sees From Verimatrix SA's (EPA:VMX) Revenues Yet As Shares Tumble 29%

Verimatrix SA (EPA:VMX) shares have had a horrible month, losing 29% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 37% share price drop.

Since its price has dipped substantially, Verimatrix may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.4x, considering almost half of all companies in the Software industry in France have P/S ratios greater than 2x and even P/S higher than 6x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Verimatrix

How Verimatrix Has Been Performing

Verimatrix hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Verimatrix would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.1%. As a result, revenue from three years ago have also fallen 35% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 3.1% each year during the coming three years according to the two analysts following the company. That's shaping up to be materially lower than the 9.1% each year growth forecast for the broader industry.

With this in consideration, its clear as to why Verimatrix's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Verimatrix's P/S Mean For Investors?

Verimatrix's recently weak share price has pulled its P/S back below other Software companies. 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.

We've established that Verimatrix maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

You always need to take note of risks, for example - Verimatrix has 3 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Verimatrix, 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.