What Nafpaktos Textile Industry S.A.'s (ATH:NAYP) 40% Share Price Gain Is Not Telling You

Nafpaktos Textile Industry S.A. (ATH:NAYP) shares have continued their recent momentum with a 40% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 13% is also fairly reasonable.

Although its price has surged higher, it's still not a stretch to say that Nafpaktos Textile Industry's price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" compared to the Luxury industry in Greece, where the median P/S ratio is around 1.2x. 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.

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See our latest analysis for Nafpaktos Textile Industry

What Does Nafpaktos Textile Industry's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Nafpaktos Textile Industry over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Nafpaktos Textile Industry will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Nafpaktos Textile Industry?

In order to justify its P/S ratio, Nafpaktos Textile Industry would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 3.5% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Nafpaktos Textile Industry's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Nafpaktos Textile Industry's P/S Mean For Investors?

Nafpaktos Textile Industry appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Nafpaktos Textile Industry revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

You need to take note of risks, for example - Nafpaktos Textile Industry has 3 warning signs (and 2 which can't be ignored) we think you should know about.

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.