There's Reason For Concern Over ACTIA Group S.A.'s (EPA:ALATI) Massive 42% Price Jump

ACTIA Group S.A. (EPA:ALATI) shares have had a really impressive month, gaining 42% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 9.4% isn't as attractive.

In spite of the firm bounce in price, there still wouldn't be many who think ACTIA Group's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in France's Electronic industry is similar at about 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for ACTIA Group

What Does ACTIA Group's Recent Performance Look Like?

Recent times haven't been great for ACTIA Group as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on ACTIA Group will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like ACTIA Group's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.6% last year. Revenue has also lifted 26% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue growth is heading into negative territory, declining 5.2% over the next year. Meanwhile, the broader industry is forecast to expand by 37%, which paints a poor picture.

With this information, we find it concerning that ACTIA Group is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

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

Its shares have lifted substantially and now ACTIA Group's P/S is back within range of the industry median. 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.

Our check of ACTIA Group's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Having said that, be aware ACTIA Group is showing 5 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

If you're unsure about the strength of ACTIA Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.