Why Investors Shouldn't Be Surprised By Cogelec SA's (EPA:ALLEC) 33% Share Price Surge

The Cogelec SA (EPA:ALLEC) share price has done very well over the last month, posting an excellent gain of 33%. The last 30 days bring the annual gain to a very sharp 91%.

Following the firm bounce in price, when almost half of the companies in France's Communications industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider Cogelec as a stock probably not worth researching with its 1.7x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Cogelec

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

Recent times have been pleasing for Cogelec as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

If we review the last year of revenue growth, the company posted a worthy increase of 12%. Pleasingly, revenue has also lifted 43% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 14% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 10%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Cogelec'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.

The Bottom Line On Cogelec's P/S

Cogelec's P/S is on the rise since its shares have risen strongly. 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.

Our look into Cogelec shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Cogelec with six simple checks will allow you to discover any risks that could be an issue.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.