Yahoo Finance Subdued Growth No Barrier To Westag AG's (FRA:WUG) Price
With a median price-to-sales (or "P/S") ratio of close to 0.7x in the Building industry in Germany, you could be forgiven for feeling indifferent about Westag AG's (FRA:WUG) P/S ratio, which comes in at about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Check out our latest analysis for Westag
How Westag Has Been Performing
For instance, Westag's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
Although there are no analyst estimates available for Westag, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is Westag's Revenue Growth Trending?
In order to justify its P/S ratio, Westag would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered a frustrating 1.4% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.
Comparing that to the industry, which is predicted to deliver 2.5% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
With this information, we find it interesting that Westag is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.
The Key Takeaway
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.
We've established that Westag's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.
Before you settle on your opinion, we've discovered 3 warning signs for Westag (1 is a bit concerning!) that you should be aware of.
If these risks are making you reconsider your opinion on Westag, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
