PLC S.p.A.'s (BIT:PLC) Share Price Not Quite Adding Up

There wouldn't be many who think PLC S.p.A.'s (BIT:PLC) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Construction industry in Italy is very similar. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for PLC

What Does PLC's Recent Performance Look Like?

PLC could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on PLC.

Is There Some Revenue Growth Forecasted For PLC?

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

Retrospectively, the last year delivered a decent 6.5% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 30% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the lone analyst following the company. That's shaping up to be materially lower than the 35% growth forecast for the broader industry.

In light of this, it's curious that PLC's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On PLC'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.

Given that PLC's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Before you settle on your opinion, we've discovered 3 warning signs for PLC (1 is a bit concerning!) that you should be aware of.

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.