Benign Growth For Voltalia SA (EPA:VLTSA) Underpins Stock's 25% Plummet

To the annoyance of some shareholders, Voltalia SA (EPA:VLTSA) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 52% loss during that time.

In spite of the heavy fall in price, Voltalia's price-to-sales (or "P/S") ratio of 2x might still make it look like a strong buy right now compared to the wider Renewable Energy industry in France, where around half of the companies have P/S ratios above 6.4x and even P/S above 14x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Voltalia

What Does Voltalia's Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Voltalia has been doing quite well of late. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. Those who are bullish on Voltalia will be hoping that this isn't the case and the company continues to beat out the industry.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Voltalia would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a decent 6.3% gain to the company's revenues. Pleasingly, revenue has also lifted 112% 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 six analysts covering the company suggest revenue should grow by 15% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 36% per annum, which is noticeably more attractive.

With this information, we can see why Voltalia is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Voltalia's P/S?

Having almost fallen off a cliff, Voltalia's share price has pulled its P/S way down as well. 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.

As expected, our analysis of Voltalia's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 3 warning signs for Voltalia (2 don't sit too well with us!) that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.