Investors Still Aren't Entirely Convinced By Somec S.p.A.'s (BIT:SOM) Revenues Despite 26% Price Jump

Somec S.p.A. (BIT:SOM) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 50% share price decline over the last year.

Although its price has surged higher, it's still not a stretch to say that Somec's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Building industry in Italy, where the median P/S ratio is around 0.7x. 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 Somec

How Somec Has Been Performing

With only a limited decrease in revenue compared to most other companies of late, Somec has been doing relatively well. Perhaps the market is expecting future revenue performance fall back in line with the poorer industry performance, which has kept the P/S contained. You'd much rather the company continue improving its revenue if you still believe in the business. But at the very least, you'd be hoping the company doesn't fall back into the pack if your plan is to pick up some stock while it's not in favour.

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

How Is Somec's Revenue Growth Trending?

Somec'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 1.0%. Even so, admirably revenue has lifted 55% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 5.5% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 1.6%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Somec's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

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

Somec appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Despite enticing revenue growth figures that outpace the industry, Somec's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Somec (1 is potentially serious) you should be aware of.

If you're unsure about the strength of Somec'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.