ACTIA Group S.A.'s (EPA:ALATI) Popularity With Investors Is Under Threat From Overpricing

There wouldn't be many who think ACTIA Group S.A.'s (EPA:ALATI) price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S for the Electronic industry in France is similar at about 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for ACTIA Group

What Does ACTIA Group's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, ACTIA Group has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ACTIA Group.

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

In order to justify its P/S ratio, ACTIA Group would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. The solid recent performance means it was also able to grow revenue by 18% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 9.6% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 22%, which is noticeably more attractive.

With this in mind, we find it intriguing that ACTIA Group's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does ACTIA Group's P/S Mean For Investors?

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.

When you consider that ACTIA Group's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

You should always think about risks. Case in point, we've spotted 3 warning signs for ACTIA Group you should be aware of, and 2 of them can't be ignored.

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