Investors Still Aren't Entirely Convinced By Avioane Craiova S.A.'s (BVB:AVIO) Revenues Despite 44% Price Jump

Despite an already strong run, Avioane Craiova S.A. (BVB:AVIO) shares have been powering on, with a gain of 44% in the last thirty days. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Although its price has surged higher, it's still not a stretch to say that Avioane Craiova's price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" compared to the Aerospace & Defense industry in Romania, where the median P/S ratio is around 1.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Avioane Craiova

How Avioane Craiova Has Been Performing

Avioane Craiova certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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 Avioane Craiova's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

Avioane Craiova's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 46% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 16% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Avioane Craiova is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Avioane Craiova's P/S?

Avioane Craiova's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We didn't quite envision Avioane Craiova's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Before you settle on your opinion, we've discovered 1 warning sign for Avioane Craiova that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.