The Price Is Right For Allegro.eu SA (WSE:ALE)

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 3.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Allegro.eu

How Allegro.eu Has Been Performing

With revenue growth that's superior to most other companies of late, Allegro.eu has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Allegro.eu would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 68% gain to the company's top line. Pleasingly, revenue has also lifted 238% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 16% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 12% each year, which is noticeably less attractive.

In light of this, it's understandable that Allegro.eu's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Allegro.eu's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a 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. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Allegro.eu with six simple checks will allow you to discover any risks that could be an issue.

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.