Yahoo Finance Risks To Shareholder Returns Are Elevated At These Prices For Jumia Technologies AG (NYSE:JMIA)
Jumia Technologies AG's (NYSE:JMIA) price-to-sales (or "P/S") ratio of 1.6x may not look like an appealing investment opportunity when you consider close to half the companies in the Multiline Retail industry in the United States have P/S ratios below 0.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
View our latest analysis for Jumia Technologies
What Does Jumia Technologies' P/S Mean For Shareholders?
Recent times haven't been great for Jumia Technologies as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Jumia Technologies' future stacks up against the industry? In that case, our free report is a great place to start.
What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, Jumia Technologies would need to produce impressive growth in excess of the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 15%. The latest three year period has also seen a 26% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Shifting to the future, estimates from the three analysts covering the company suggest revenue growth is heading into negative territory, declining 5.2% over the next year. That's not great when the rest of the industry is expected to grow by 11%.
With this information, we find it concerning that Jumia Technologies is trading at a P/S higher than the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.
What We Can Learn From Jumia Technologies' P/S?
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.
Our examination of Jumia Technologies' analyst forecasts revealed that its shrinking revenue outlook isn't drawing down its high P/S anywhere near as much as we would have predicted. In cases like this where we see revenue decline on the horizon, we suspect the share price is at risk of following suit, bringing back the high P/S into the realms of suitability. Unless these conditions improve markedly, it'll be a challenging time for shareholders.
You need to take note of risks, for example - Jumia Technologies has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
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.
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