Some Videndum Plc (LON:VID) Shareholders Look For Exit As Shares Take 32% Pounding

To the annoyance of some shareholders, Videndum Plc (LON:VID) shares are down a considerable 32% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 69% share price decline.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Videndum's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in the United Kingdom is also close to 0.7x. 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.

View our latest analysis for Videndum

What Does Videndum's Recent Performance Look Like?

With revenue that's retreating more than the industry's average of late, Videndum has been very sluggish. One possibility is that the P/S is moderate because investors think the company's revenue trend will eventually fall in line with most others in the industry. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

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

How Is Videndum's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Videndum's is when the company's growth is tracking the industry closely.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 24%. This means it has also seen a slide in revenue over the longer-term as revenue is down 16% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 7.0% over the next year. That's shaping up to be materially lower than the 12% growth forecast for the broader industry.

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

What Does Videndum's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Videndum looks to be in line with the rest of the Consumer Durables industry. 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.

Given that Videndum's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. 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. A positive change is needed in order to justify the current price-to-sales ratio.

You always need to take note of risks, for example - Videndum has 1 warning sign we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.