Investors Don't See Light At End Of Sevenet S.A.'s (WSE:SEV) Tunnel

With a price-to-sales (or "P/S") ratio of 0.2x Sevenet S.A. (WSE:SEV) may be sending bullish signals at the moment, given that almost half of all the IT companies in Poland have P/S ratios greater than 0.9x and even P/S higher than 3x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Sevenet

What Does Sevenet's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Sevenet over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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 out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sevenet will help you shine a light on its historical performance.

How Is Sevenet's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 5.1% decrease to the company's top line. Even so, admirably revenue has lifted 91% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 44% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Sevenet's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Sevenet's P/S

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.

In line with expectations, Sevenet maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Sevenet (of which 2 are potentially serious!) you should know about.

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