VusionGroup S.A.'s (EPA:VU) 25% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, VusionGroup S.A. (EPA:VU) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 114% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given around half the companies in France's Electronic industry have price-to-sales ratios (or "P/S") below 0.3x, you may consider VusionGroup as a stock to avoid entirely with its 4.6x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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Check out our latest analysis for VusionGroup

What Does VusionGroup's Recent Performance Look Like?

Recent times have been advantageous for VusionGroup as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is VusionGroup's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 19%. Pleasingly, revenue has also lifted 126% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 32% per year over the next three years. That's shaping up to be similar to the 29% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that VusionGroup's P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On VusionGroup's P/S

Shares in VusionGroup have seen a strong upwards swing lately, which has really helped boost its P/S figure. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given VusionGroup's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for VusionGroup with six simple checks will allow you to discover any risks that could be an issue.

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