What TrenDevice S.p.A.'s (BIT:TD) 31% Share Price Gain Is Not Telling You

TrenDevice S.p.A. (BIT:TD) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that TrenDevice's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in Italy, where the median P/S ratio is around 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for TrenDevice

How Has TrenDevice Performed Recently?

With revenue growth that's superior to most other companies of late, TrenDevice has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. 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 TrenDevice.

How Is TrenDevice's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 8.6%. This was backed up an excellent period prior to see revenue up by 87% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 0.7% during the coming year according to the one analyst following the company. With the industry predicted to deliver 23% growth, that's a disappointing outcome.

With this in consideration, we think it doesn't make sense that TrenDevice's P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What Does TrenDevice's P/S Mean For Investors?

TrenDevice appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

While TrenDevice's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Before you settle on your opinion, we've discovered 4 warning signs for TrenDevice (3 are a bit unpleasant!) that 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.