Not Many Are Piling Into Fernheizwerk Neukölln Aktiengesellschaft (FRA:FHW) Just Yet

Simply Wall St · 10/15 04:07

With a price-to-sales (or "P/S") ratio of 0.8x Fernheizwerk Neukölln Aktiengesellschaft (FRA:FHW) may be sending bullish signals at the moment, given that almost half of all the Water Utilities companies in Germany have P/S ratios greater than 1.6x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Fernheizwerk Neukölln

ps-multiple-vs-industry
DB:FHW Price to Sales Ratio vs Industry October 15th 2024

How Has Fernheizwerk Neukölln Performed Recently?

As an illustration, revenue has deteriorated at Fernheizwerk Neukölln over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Fernheizwerk Neukölln will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Fernheizwerk Neukölln, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Fernheizwerk Neukölln?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 16%. Even so, admirably revenue has lifted 76% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

When compared to the industry's one-year growth forecast of 11%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that Fernheizwerk Neukölln's P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Fernheizwerk Neukölln'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.

We're very surprised to see Fernheizwerk Neukölln currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

It is also worth noting that we have found 3 warning signs for Fernheizwerk Neukölln (1 is concerning!) that you need to take into consideration.

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).