A Piece Of The Puzzle Missing From NewPrinces S.p.A.'s (BIT:NWL) 27% Share Price Climb

NewPrinces S.p.A. (BIT:NWL) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 66% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think NewPrinces' price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Italy's Food industry is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for NewPrinces

What Does NewPrinces' Recent Performance Look Like?

Recent times have been advantageous for NewPrinces as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

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

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

Retrospectively, the last year delivered an exceptional 169% gain to the company's top line. Pleasingly, revenue has also lifted 252% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 13% per annum during the coming three years according to the dual analysts following the company. With the industry only predicted to deliver 11% per annum, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that NewPrinces' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On NewPrinces' P/S

NewPrinces' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We've established that NewPrinces currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for NewPrinces (of which 2 don't sit too well with us!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.