Slammed 28% Websolute S.p.A. (BIT:WBS) Screens Well Here But There Might Be A Catch

Websolute S.p.A. (BIT:WBS) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The last month has meant the stock is now only up 6.8% during the last year.

In spite of the heavy fall in price, Websolute's price-to-sales (or "P/S") ratio of 0.4x might still make it look like a buy right now compared to the Interactive Media and Services industry in Italy, where around half of the companies have P/S ratios above 1.4x and even P/S above 5x 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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Check out our latest analysis for Websolute

What Does Websolute's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Websolute has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Websolute 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 14% last year. The solid recent performance means it was also able to grow revenue by 24% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 8.7% each year during the coming three years according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 10% per annum, which is not materially different.

With this information, we find it odd that Websolute is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Websolute's recently weak share price has pulled its P/S back below other Interactive Media and Services companies. 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.

It looks to us like the P/S figures for Websolute remain low despite growth that is expected to be in line with other companies in the industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Websolute (2 are concerning) you should be aware of.

If these risks are making you reconsider your opinion on Websolute, 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.