Cy4gate S.p.A.'s (BIT:CY4) Share Price Matching Investor Opinion

When you see that almost half of the companies in the Software industry in Italy have price-to-sales ratios (or "P/S") below 1.3x, Cy4gate S.p.A. (BIT:CY4) looks to be giving off some sell signals with its 2.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Cy4gate

How Cy4gate Has Been Performing

Recent times have been advantageous for Cy4gate as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Cy4gate's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Cy4gate's Revenue Growth Trending?

In order to justify its P/S ratio, Cy4gate would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 155% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 17% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 14% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Cy4gate'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.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Cy4gate maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Cy4gate has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Cy4gate, 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.