Monnalisa S.p.A.'s (BIT:MNL) 48% Price Boost Is Out Of Tune With Revenues

Those holding Monnalisa S.p.A. (BIT:MNL) shares would be relieved that the share price has rebounded 48% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 61% share price decline over the last year.

Even after such a large jump in price, there still wouldn't be many who think Monnalisa's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Italy's Luxury industry is similar at about 0.5x. 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 Monnalisa

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

For example, consider that Monnalisa's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Monnalisa's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 5.1% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that Monnalisa is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

Its shares have lifted substantially and now Monnalisa's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Monnalisa's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

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

If these risks are making you reconsider your opinion on Monnalisa, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.