Yahoo Finance INTERSHOP Communications Aktiengesellschaft (ETR:ISHA) Stock Rockets 37% But Many Are Still Ignoring The Company
INTERSHOP Communications Aktiengesellschaft (ETR:ISHA) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.
Although its price has surged higher, INTERSHOP Communications' price-to-sales (or "P/S") ratio of 0.8x might still make it look like a buy right now compared to the Software industry in Germany, where around half of the companies have P/S ratios above 2x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
See our latest analysis for INTERSHOP Communications
What Does INTERSHOP Communications' P/S Mean For Shareholders?
Recent times haven't been great for INTERSHOP Communications as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could 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 INTERSHOP Communications.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should underperform the industry for P/S ratios like INTERSHOP Communications' to be considered reasonable.
If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 16% overall rise in revenue. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Turning to the outlook, the next three years should generate growth of 7.0% each year as estimated by the two analysts watching the company. That's shaping up to be similar to the 7.9% per year growth forecast for the broader industry.
With this information, we find it odd that INTERSHOP Communications is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.
The Final Word
Despite INTERSHOP Communications' share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've seen that INTERSHOP Communications currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
And what about other risks? Every company has them, and we've spotted 3 warning signs for INTERSHOP Communications you should know about.
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.
