Revenues Not Telling The Story For Monnalisa S.p.A. (BIT:MNL) After Shares Rise 45%

Despite an already strong run, Monnalisa S.p.A. (BIT:MNL) shares have been powering on, with a gain of 45% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 25% over that time.

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

Check out our latest analysis for Monnalisa

What Does Monnalisa's Recent Performance Look Like?

Monnalisa could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Monnalisa's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 9.2% as estimated by the one analyst watching the company. Meanwhile, the broader industry is forecast to expand by 4.1%, which paints a poor picture.

With this in consideration, we think it doesn't make sense that Monnalisa's P/S is closely matching its industry peers. 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 Key Takeaway

Monnalisa appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our check of Monnalisa's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Monnalisa (at least 2 which can't be ignored), and understanding these should be part of your investment process.

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.