What You Can Learn From Estrima S.p.A.'s (BIT:BIRO) P/S

With a median price-to-sales (or "P/S") ratio of close to 0.3x in the Auto industry in Italy, you could be forgiven for feeling indifferent about Estrima S.p.A.'s (BIT:BIRO) P/S ratio of 0.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Estrima

What Does Estrima's Recent Performance Look Like?

Estrima could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is Estrima's Revenue Growth Trending?

Estrima's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

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%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 258% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 3.8% each year during the coming three years according to the only analyst following the company. With the industry predicted to deliver 4.2% growth each year, the company is positioned for a comparable revenue result.

With this in mind, it makes sense that Estrima's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Estrima's P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at Estrima's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Having said that, be aware Estrima is showing 4 warning signs in our investment analysis, and 2 of those are significant.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.