Market Cool On ATEME SA's (EPA:ATEME) Revenues Pushing Shares 27% Lower

To the annoyance of some shareholders, ATEME SA (EPA:ATEME) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 47% in that time.

Although its price has dipped substantially, there still wouldn't be many who think ATEME's price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in France's Communications industry is similar at about 0.8x. 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 ATEME

How Has ATEME Performed Recently?

ATEME could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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.

How Is ATEME's Revenue Growth Trending?

ATEME's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 6.8% gain to the company's revenues. Pleasingly, revenue has also lifted 48% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue growth will be highly resilient over the next year growing by 8.4%. With the rest of the industry predicted to shrink by 1.7%, that would be a fantastic result.

With this in mind, we find it intriguing that ATEME's P/S trades in-line with its industry peers. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

The Final Word

Following ATEME's share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that ATEME currently trades on a lower than expected P/S since its growth forecasts are potentially beating a struggling industry. We assume that investors are attributing some risk to the company's future revenues, keeping it from trading at a higher P/S. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for ATEME (1 is potentially serious) you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.