Lacklustre Performance Is Driving Evoke plc's (LON:EVOK) 27% Price Drop

Evoke plc (LON:EVOK) shares have had a horrible month, losing 27% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 42% share price drop.

Following the heavy fall in price, considering around half the companies operating in the United Kingdom's Hospitality industry have price-to-sales ratios (or "P/S") above 0.9x, you may consider Evoke as an solid investment opportunity with its 0.1x 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 limited.

Check out our latest analysis for Evoke

What Does Evoke's P/S Mean For Shareholders?

Recent times haven't been great for Evoke as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Evoke will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Evoke?

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

Retrospectively, the last year delivered a decent 2.5% gain to the company's revenues. Pleasingly, revenue has also lifted 146% in aggregate from three years ago, partly 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 seven analysts covering the company suggest revenue should grow by 4.2% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 7.0% per annum, which is noticeably more attractive.

With this in consideration, its clear as to why Evoke's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Evoke's P/S

Evoke's 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.

We've established that Evoke maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Evoke (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.