Shareholders Should Be Pleased With Allegro.eu SA's (WSE:ALE) Price

When you see that almost half of the companies in the Multiline Retail industry in Poland have price-to-sales ratios (or "P/S") below 1.1x, Allegro.eu SA (WSE:ALE) looks to be giving off strong sell signals with its 3.5x 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 so lofty.

See our latest analysis for Allegro.eu

What Does Allegro.eu's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Allegro.eu has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Allegro.eu's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 36% gain to the company's top line. Pleasingly, revenue has also lifted 192% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 11% per annum as estimated by the analysts watching the company. That's shaping up to be materially higher than the 8.2% per year growth forecast for the broader industry.

In light of this, it's understandable that Allegro.eu's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Allegro.eu's P/S?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Allegro.eu maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Multiline Retail industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Allegro.eu you should be aware of.

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.