What Quadient S.A.'s (EPA:QDT) 26% Share Price Gain Is Not Telling You

Quadient S.A. (EPA:QDT) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 26%.

In spite of the firm bounce in price, there still wouldn't be many who think Quadient's price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S in France's Tech industry is similar at about 0.6x. 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.

Check out our latest analysis for Quadient

How Has Quadient Performed Recently?

Quadient could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Is There Some Revenue Growth Forecasted For Quadient?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Likewise, not much has changed from three years ago as revenue have been stuck during that whole time. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Turning to the outlook, the next three years should generate growth of 2.4% each year as estimated by the four analysts watching the company. With the industry predicted to deliver 4.7% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's curious that Quadient's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Quadient's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at the analysts forecasts of Quadient's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you settle on your opinion, we've discovered 2 warning signs for Quadient that you should be aware of.

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.