Aeffe S.p.A. (BIT:AEF) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Aeffe S.p.A. (BIT:AEF) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 22% in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Aeffe's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Luxury industry in Italy is also close to 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Aeffe

What Does Aeffe's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Aeffe's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

In order to justify its P/S ratio, Aeffe would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 6.5% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 13% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue growth is heading into negative territory, declining 6.0% over the next year. That's not great when the rest of the industry is expected to grow by 8.2%.

In light of this, it's somewhat alarming that Aeffe's P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Bottom Line On Aeffe's P/S

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

It appears that Aeffe currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Aeffe you should know about.

If you're unsure about the strength of Aeffe'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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