Yahoo Finance Many Still Looking Away From AdCapital AG (FRA:ADC)
You may think that with a price-to-sales (or "P/S") ratio of 0.1x AdCapital AG (FRA:ADC) is definitely a stock worth checking out, seeing as almost half of all the Capital Markets companies in Germany have P/S ratios greater than 2.8x and even P/S above 9x aren't out of the ordinary. 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.
View our latest analysis for AdCapital
What Does AdCapital's Recent Performance Look Like?
AdCapital has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. If you 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.
Although there are no analyst estimates available for AdCapital, 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 AdCapital?
AdCapital's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 2.8%. The solid recent performance means it was also able to grow revenue by 18% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
In contrast to the company, the rest of the industry is expected to decline by 3.6% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.
In light of this, it's quite peculiar that AdCapital's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader industry.
The Bottom Line On AdCapital's P/S
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.
Looking at the figures, it's surprising to see AdCapital currently trades on a much lower than expected P/S since its recent three-year revenue growth is beating forecasts for a struggling industry. We think potential risks might be placing significant pressure on the P/S ratio and share price. The most obvious risk is that its revenue trajectory may not keep outperforming under these tough industry conditions. At least the risk of a price drop looks to be subdued, but investors think future revenue could see a lot of volatility.
Before you take the next step, you should know about the 4 warning signs for AdCapital (2 make us uncomfortable!) 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).
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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.
