The Market Doesn't Like What It Sees From Fidia S.p.A.'s (BIT:FDA) Revenues Yet As Shares Tumble 27%

Unfortunately for some shareholders, the Fidia S.p.A. (BIT:FDA) share price has dived 27% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 98% loss during that time.

After such a large drop in price, considering around half the companies operating in Italy's Machinery industry have price-to-sales ratios (or "P/S") above 0.8x, you may consider Fidia as an solid investment opportunity with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for Fidia

How Has Fidia Performed Recently?

For instance, Fidia's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

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

Fidia's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than 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 39%. The last three years don't look nice either as the company has shrunk revenue by 27% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 4.8% shows it's an unpleasant look.

With this in mind, we understand why Fidia's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

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

The southerly movements of Fidia's shares means its P/S is now sitting at a pretty low level. 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.

It's no surprise that Fidia maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

It is also worth noting that we have found 5 warning signs for Fidia that you need to take into consideration.

If you're unsure about the strength of Fidia's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.