Revenues Tell The Story For Veridis Environment Ltd (TLV:VRDS)

When you see that almost half of the companies in the Commercial Services industry in Israel have price-to-sales ratios (or "P/S") below 0.7x, Veridis Environment Ltd (TLV:VRDS) looks to be giving off some sell signals with its 1.2x 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 as high as it is.

Check out our latest analysis for Veridis Environment

How Has Veridis Environment Performed Recently?

Veridis Environment certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Veridis Environment's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

Taking a look back first, we see that the company grew revenue by an impressive 54% last year. The strong recent performance means it was also able to grow revenue by 184% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 15% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in consideration, it's not hard to understand why Veridis Environment's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

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.

It's no surprise that Veridis Environment can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Veridis Environment (at least 2 which shouldn't be ignored), and understanding these should be part of your investment process.

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.