Fernheizwerk Neukölln Aktiengesellschaft (FRA:FHW) Might Not Be As Mispriced As It Looks
With a price-to-sales (or "P/S") ratio of 1.2x 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 1.7x 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.
Check out our latest analysis for Fernheizwerk Neukölln
How Has Fernheizwerk Neukölln Performed Recently?
Recent times have been quite advantageous for Fernheizwerk Neukölln as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Fernheizwerk Neukölln will help you shine a light on its historical performance.
How Is Fernheizwerk Neukölln's Revenue Growth Trending?
Fernheizwerk Neukölln's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Taking a look back first, we see that the company grew revenue by an impressive 75% last year. Pleasingly, revenue has also lifted 112% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.
This is in contrast to the rest of the industry, which is expected to grow by 7.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.
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.
What We Can Learn From Fernheizwerk Neukölln's P/S?
We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
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. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.
Before you settle on your opinion, we've discovered 1 warning sign for Fernheizwerk Neukölln that you should be aware of.
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).
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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.