Further Upside For ATEME SA (EPA:ATEME) Shares Could Introduce Price Risks After 30% Bounce

ATEME SA (EPA:ATEME) shares have continued their recent momentum with a 30% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Even after such a large jump in price, it's still not a stretch to say that ATEME's price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" compared to the Communications industry in France, where the median P/S ratio is around 0.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for ATEME

What Does ATEME's Recent Performance Look Like?

The recently shrinking revenue for ATEME has been in line with the industry. The P/S ratio is probably moderate because investors think the company's revenue trend will continue to follow the rest of the industry. You'd much rather the company improve its revenue if you still believe in the business. In saying that, existing shareholders probably aren't too pessimistic about the share price if the company's revenue continues tracking the industry.

Want the full picture on analyst estimates for the company? Then our free report on ATEME will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For ATEME?

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

Retrospectively, the last year delivered a frustrating 5.3% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 27% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 15% as estimated by the dual analysts watching the company. With the industry only predicted to deliver 12%, the company is positioned for a stronger revenue result.

In light of this, it's curious that ATEME's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

ATEME appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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.

Despite enticing revenue growth figures that outpace the industry, ATEME's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You should always think about risks. Case in point, we've spotted 3 warning signs for ATEME you should be aware of, and 1 of them doesn't sit too well with us.

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