Groupe Tera SA (EPA:ALGTR) Looks Just Right With A 25% Price Jump

Groupe Tera SA (EPA:ALGTR) 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 16% over that time.

Since its price has surged higher, given close to half the companies operating in France's Electronic industry have price-to-sales ratios (or "P/S") below 0.4x, you may consider Groupe Tera as a stock to potentially avoid with its 1.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Groupe Tera

How Groupe Tera Has Been Performing

With revenue growth that's inferior to most other companies of late, Groupe Tera has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Groupe Tera's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Groupe Tera?

In order to justify its P/S ratio, Groupe Tera would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.1% last year. This was backed up an excellent period prior to see revenue up by 195% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 15% per annum during the coming three years according to the only analyst following the company. That's shaping up to be materially higher than the 9.7% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Groupe Tera's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Groupe Tera's P/S Mean For Investors?

The large bounce in Groupe Tera's shares has lifted the company's P/S handsomely. 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.

As we suspected, our examination of Groupe Tera's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 3 warning signs for Groupe Tera (1 is significant!) that you should be aware of.

If these risks are making you reconsider your opinion on Groupe Tera, 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.