Yahoo Finance Tradegate AG Wertpapierhandelsbank's (FRA:T2G) Shareholders Might Be Looking For Exit
With a price-to-sales (or "P/S") ratio of 23.4x Tradegate AG Wertpapierhandelsbank (FRA:T2G) may be sending very bearish signals at the moment, given that almost half of all the Capital Markets companies in Germany have P/S ratios under 2.8x and even P/S lower than 0.7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
Check out our latest analysis for Tradegate Wertpapierhandelsbank
How Tradegate Wertpapierhandelsbank Has Been Performing
For example, consider that Tradegate Wertpapierhandelsbank's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Tradegate Wertpapierhandelsbank will help you shine a light on its historical performance.
Is There Enough Revenue Growth Forecasted For Tradegate Wertpapierhandelsbank?
The only time you'd be truly comfortable seeing a P/S as steep as Tradegate Wertpapierhandelsbank's is when the company's growth is on track to outshine the industry decidedly.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 38%. This means it has also seen a slide in revenue over the longer-term as revenue is down 37% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Comparing that to the industry, which is predicted to shrink 3.6% in the next 12 months, the company's downward momentum is still inferior based on recent medium-term annualised revenue results.
With this information, it's strange that Tradegate Wertpapierhandelsbank is trading at a higher P/S in comparison. In general, when revenue shrink rapidly the P/S premium often shrinks too, which could set up shareholders for future disappointment. There's potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.
The Final Word
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.
We've established that Tradegate Wertpapierhandelsbank currently trades on a much higher than expected P/S since its recent three-year revenues are even worse than the forecasts for a struggling industry. Right now we aren't comfortable with the high P/S as this revenue performance is unlikely to support such positive sentiment for long. We're also cautious about the company's ability to stay its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. This would place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Tradegate Wertpapierhandelsbank you should know about.
If these risks are making you reconsider your opinion on Tradegate Wertpapierhandelsbank, 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.
