Further Upside For Archos S.A. (EPA:ALJXR) Shares Could Introduce Price Risks After 27% Bounce

The Archos S.A. (EPA:ALJXR) share price has done very well over the last month, posting an excellent gain of 27%. But the last month did very little to improve the 63% share price decline over the last year.

Even after such a large jump in price, it's still not a stretch to say that Archos' price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Tech industry in France, where the median P/S ratio is around 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Archos

How Archos Has Been Performing

Recent times have been advantageous for Archos as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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.

How Is Archos' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 57% last year. The latest three year period has also seen an excellent 50% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 47% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 11%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Archos' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

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

Looking at Archos' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Archos is showing 2 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.