EKINOPS S.A. (EPA:EKI) Soars 30% But It's A Story Of Risk Vs Reward

EKINOPS S.A. (EPA:EKI) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 2.5% isn't as attractive.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about EKINOPS' P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Communications industry in France is about the same. 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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See our latest analysis for EKINOPS

How EKINOPS Has Been Performing

EKINOPS hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is EKINOPS' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like EKINOPS' is when the company's growth is tracking the industry closely.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.9%. 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 14% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 7.0% each year as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 3.2% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that EKINOPS' P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On EKINOPS' P/S

Its shares have lifted substantially and now EKINOPS' P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Despite enticing revenue growth figures that outpace the industry, EKINOPS' P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 1 warning sign for EKINOPS that we have uncovered.

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).

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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.