Nexi S.p.A.'s (BIT:NEXI) Shares Lagging The Industry But So Is The Business

Nexi S.p.A.'s (BIT:NEXI) price-to-sales (or "P/S") ratio of 0.8x might make it look like a buy right now compared to the Diversified Financial industry in Italy, where around half of the companies have P/S ratios above 2x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Nexi

How Nexi Has Been Performing

Nexi could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 6.6% last year. Pleasingly, revenue has also lifted 110% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to plummet, contracting by 14% per year during the coming three years according to the analysts following the company. Meanwhile, the broader industry is forecast to moderate by 2.7% per annum, which indicates the company should perform poorly indeed.

In light of this, it's understandable that Nexi's P/S sits below the majority of other companies. Nonetheless, with revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

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

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.

As expected, our analysis of Nexi's analyst forecasts confirms that the company's even more precarious outlook against the industry is a major contributor to its low P/S. With such a gloomy outlook, investors feel the potential for an improvement in revenue isn't great enough to justify paying a premium resulting in a higher P/S ratio. Typically when industry conditions are tough, there's a real risk of company revenues sliding further, which is a concern of ours in this case. In the meantime, unless the company's prospects improve they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Nexi (1 can't be ignored!) that you need to be mindful 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.