Investors Give eo Networks S.A. (WSE:EON) Shares A 27% Hiding

eo Networks S.A. (WSE:EON) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Longer-term, the stock has been solid despite a difficult 30 days, gaining 12% in the last year.

Although its price has dipped substantially, eo Networks' price-to-sales (or "P/S") ratio of 0.4x might still make it look like a buy right now compared to the Software industry in Poland, where around half of the companies have P/S ratios above 2.1x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for eo Networks

What Does eo Networks' Recent Performance Look Like?

eo Networks certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Although there are no analyst estimates available for eo Networks, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is eo Networks' Revenue Growth Trending?

In order to justify its P/S ratio, eo Networks would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 41% last year. The strong recent performance means it was also able to grow revenue by 102% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 9.1%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that eo Networks' P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From eo Networks' P/S?

eo Networks' P/S has taken a dip along with its share price. 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're very surprised to see eo Networks currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Before you take the next step, you should know about the 3 warning signs for eo Networks that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.