Lacklustre Performance Is Driving Gurit Holding AG's (VTX:GURN) 26% Price Drop

Simply Wall St · 10/17 04:09

To the annoyance of some shareholders, Gurit Holding AG (VTX:GURN) shares are down a considerable 26% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 74% share price decline.

Although its price has dipped substantially, Gurit Holding's price-to-sales (or "P/S") ratio of 0.2x might still make it look like a strong buy right now compared to the wider Chemicals industry in Switzerland, where around half of the companies have P/S ratios above 3.5x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Gurit Holding

ps-multiple-vs-industry
SWX:GURN Price to Sales Ratio vs Industry October 17th 2024

What Does Gurit Holding's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Gurit Holding's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Gurit Holding.

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

In order to justify its P/S ratio, Gurit Holding would need to produce anemic growth that's substantially trailing the industry.

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 16%. As a result, revenue from three years ago have also fallen 23% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 4.8% per year over the next three years. With the industry predicted to deliver 54% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Gurit Holding's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Gurit Holding's P/S?

Shares in Gurit Holding have plummeted and its P/S has followed suit. 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.

As we suspected, our examination of Gurit Holding's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Gurit Holding (1 is concerning!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).