It's Down 28% But Drone Volt SA (EPA:ALDRV) Could Be Riskier Than It Looks

Drone Volt SA (EPA:ALDRV) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Longer-term, the stock has been solid despite a difficult 30 days, gaining 16% in the last year.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Drone Volt's P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in France is also close to 0.4x. 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 Drone Volt

How Drone Volt Has Been Performing

With revenue growth that's exceedingly strong of late, Drone Volt has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Drone Volt will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Drone Volt will help you shine a light on its historical performance.

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 178%. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 22% shows it's noticeably more attractive.

In light of this, it's curious that Drone Volt's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Drone Volt's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We didn't quite envision Drone Volt's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Before you settle on your opinion, we've discovered 4 warning signs for Drone Volt (3 are a bit unpleasant!) that you should be aware of.

If you're unsure about the strength of Drone Volt'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.