Even With A 32% Surge, Cautious Investors Are Not Rewarding Archos S.A.'s (EPA:ALJXR) Performance Completely

Despite an already strong run, Archos S.A. (EPA:ALJXR) shares have been powering on, with a gain of 32% in the last thirty days. The annual gain comes to 166% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, it's still not a stretch to say that Archos' price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Tech industry in France, where the median P/S ratio is around 0.6x. 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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Check out our latest analysis for Archos

What Does Archos' Recent Performance Look Like?

Recent times have been advantageous for Archos as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

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 Archos' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 59%. Pleasingly, revenue has also lifted 103% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 28% per year during the coming three years according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 9.7% each year, which is noticeably less attractive.

In light of this, it's curious that Archos' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Archos' stock has a lot of momentum behind it lately, which has brought its P/S level with 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've established that Archos currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Plus, you should also learn about these 3 warning signs we've spotted with Archos (including 1 which makes us a bit uncomfortable).

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