Velocity Composites plc (LON:VEL) Doing What It Can To Lift Shares

With a median price-to-sales (or "P/S") ratio of close to 1.5x in the Aerospace & Defense industry in the United Kingdom, you could be forgiven for feeling indifferent about Velocity Composites plc's (LON:VEL) P/S ratio of 1x. 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.

See our latest analysis for Velocity Composites

How Velocity Composites Has Been Performing

Recent times have been advantageous for Velocity Composites as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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 Some Revenue Growth Forecasted For Velocity Composites?

In order to justify its P/S ratio, Velocity Composites would need to produce growth that's similar to 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.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 28% over the next year. 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 is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite enticing revenue growth figures that outpace the industry, Velocity Composites' P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Velocity Composites that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.