Why We're Not Concerned Yet About Yolo Group S.p.A.'s (BIT:YOLO) 26% Share Price Plunge

The Yolo Group S.p.A. (BIT:YOLO) share price has fared very poorly over the last month, falling by a substantial 26%. For any long-term shareholders, the last month ends a year to forget by locking in a 69% share price decline.

Even after such a large drop in price, you could still be forgiven for thinking Yolo Group is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.5x, considering almost half the companies in Italy's Insurance industry have P/S ratios below 0.8x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Yolo Group

What Does Yolo Group's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Yolo Group has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Yolo Group will help you uncover what's on the horizon.

How Is Yolo Group's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Yolo Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 106% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 84% each year as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 7.5% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Yolo Group's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Yolo Group's P/S?

Despite the recent share price weakness, Yolo Group's P/S remains higher than most other companies in the industry. 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.

As we suspected, our examination of Yolo Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Yolo Group that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.