The Market Lifts Verbicom S.A. (WSE:VRB) Shares 44% But It Can Do More

Verbicom S.A. (WSE:VRB) shareholders have had their patience rewarded with a 44% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 4.8% isn't as impressive.

Although its price has surged higher, Verbicom may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Telecom industry in Poland have P/S ratios greater than 0.9x and even P/S higher than 3x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Verbicom

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

As an illustration, revenue has deteriorated at Verbicom 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Verbicom's earnings, revenue and cash flow.

How Is Verbicom's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Verbicom's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 1.2% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 73% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 1.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Verbicom's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Despite Verbicom's share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Verbicom revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Verbicom 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.