What Egide S.A.'s (EPA:ALGID) 45% Share Price Gain Is Not Telling You

Egide S.A. (EPA:ALGID) shares have had a really impressive month, gaining 45% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 33%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Egide's P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in France is also close to 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Egide

What Does Egide's P/S Mean For Shareholders?

Egide could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Is There Some Revenue Growth Forecasted For Egide?

The only time you'd be comfortable seeing a P/S like Egide's is when the company's growth is tracking the industry closely.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.5%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 121% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 8.2% over the next year. That's shaping up to be materially lower than the 35% growth forecast for the broader industry.

In light of this, it's curious that Egide's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

Egide appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

When you consider that Egide'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. A positive change is needed in order to justify the current price-to-sales ratio.

Plus, you should also learn about these 3 warning signs we've spotted with Egide (including 2 which shouldn't be ignored).

If you're unsure about the strength of Egide'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.