Askoll EVA SpA (BIT:EVA) Screens Well But There Might Be A Catch

With a median price-to-sales (or "P/S") ratio of close to 0.4x in the Auto industry in Italy, you could be forgiven for feeling indifferent about Askoll EVA SpA's (BIT:EVA) P/S ratio of 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Askoll EVA

How Askoll EVA Has Been Performing

Askoll EVA 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.

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

How Is Askoll EVA's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 40%. The last three years don't look nice either as the company has shrunk revenue by 25% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 32% per year as estimated by the only analyst watching the company. With the industry only predicted to deliver 2.6% each year, the company is positioned for a stronger revenue result.

In light of this, it's curious that Askoll EVA's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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.

We've established that Askoll EVA currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You need to take note of risks, for example - Askoll EVA has 5 warning signs (and 2 which are concerning) we think you should know about.

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.