Salvatore Ferragamo S.p.A.'s (BIT:SFER) Business Is Yet to Catch Up With Its Share Price

Salvatore Ferragamo S.p.A.'s (BIT:SFER) price-to-sales (or "P/S") ratio of 1.1x may not look like an appealing investment opportunity when you consider close to half the companies in the Luxury industry in Italy have P/S ratios below 0.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Salvatore Ferragamo

What Does Salvatore Ferragamo's P/S Mean For Shareholders?

Salvatore Ferragamo hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Salvatore Ferragamo?

In order to justify its P/S ratio, Salvatore Ferragamo would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 5.1% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 9.1% per annum, which is noticeably more attractive.

In light of this, it's alarming that Salvatore Ferragamo's P/S sits above 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 growth outlook.

What Does Salvatore Ferragamo's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've concluded that Salvatore Ferragamo currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Salvatore Ferragamo has 3 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.