Subdued Growth No Barrier To ENENSYS Technologies SA (EPA:ALNN6) With Shares Advancing 29%

ENENSYS Technologies SA (EPA:ALNN6) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 50% in the last year.

Even after such a large jump in price, it's still not a stretch to say that ENENSYS Technologies' price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Communications industry in France, seeing as it matches the P/S ratio of the wider industry. 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.

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Check out our latest analysis for ENENSYS Technologies

What Does ENENSYS Technologies' Recent Performance Look Like?

ENENSYS Technologies hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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Is There Some Revenue Growth Forecasted For ENENSYS Technologies?

There's an inherent assumption that a company should be matching the industry for P/S ratios like ENENSYS Technologies' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 13%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 2.6% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 5.7%, which is noticeably more attractive.

In light of this, it's curious that ENENSYS Technologies' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

Its shares have lifted substantially and now ENENSYS Technologies' P/S is back within range of the industry median. 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.

Given that ENENSYS Technologies' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware ENENSYS Technologies is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

If you're unsure about the strength of ENENSYS Technologies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.