It's Down 29% But Velocity Composites plc (LON:VEL) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the Velocity Composites plc (LON:VEL) share price has dived 29% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 36% share price drop.

Following the heavy fall in price, it would be understandable if you think Velocity Composites is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.6x, considering almost half the companies in the United Kingdom's Aerospace & Defense industry have P/S ratios above 1.5x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Velocity Composites

What Does Velocity Composites' Recent Performance Look Like?

Recent times have been advantageous for Velocity Composites as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Velocity Composites?

The only time you'd be truly comfortable seeing a P/S as low as Velocity Composites' is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 54%. Pleasingly, revenue has also lifted 137% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 28% as estimated by the three analysts watching the company. With the industry only predicted to deliver 16%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Velocity Composites' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does Velocity Composites' P/S Mean For Investors?

Velocity Composites' P/S has taken a dip along with its share price. 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.

A look at Velocity Composites' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be 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 3 warning signs for Velocity Composites that we have uncovered.

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.