Verimatrix SA (EPA:VMX) Held Back By Insufficient Growth Even After Shares Climb 25%

Verimatrix SA (EPA:VMX) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Although its price has surged higher, Verimatrix may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.5x, considering almost half of all companies in the Software industry in France have P/S ratios greater than 2.2x 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.

See our latest analysis for Verimatrix

What Does Verimatrix's Recent Performance Look Like?

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. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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.

How Is Verimatrix's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Verimatrix's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 1.4% decrease to the company's top line. As a result, revenue from three years ago have also fallen 40% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 1.8% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 9.7%, which is noticeably more attractive.

In light of this, it's understandable that Verimatrix's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Verimatrix's P/S

The latest share price surge wasn't enough to lift Verimatrix's P/S close to the industry median. 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.

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. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Verimatrix that you need to be mindful of.

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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