Yahoo Finance ÜSTRA Hannoversche Verkehrsbetriebe Aktiengesellschaft (FRA:HVB) Investors Are Less Pessimistic Than Expected
When close to half the companies in the Transportation industry in Germany have price-to-sales ratios (or "P/S") below 0.4x, you may consider ÜSTRA Hannoversche Verkehrsbetriebe Aktiengesellschaft (FRA:HVB) as a stock to potentially avoid with its 1.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
Check out our latest analysis for ÜSTRA Hannoversche Verkehrsbetriebe
What Does ÜSTRA Hannoversche Verkehrsbetriebe's Recent Performance Look Like?
For instance, ÜSTRA Hannoversche Verkehrsbetriebe's receding revenue in recent times would have to be some food for thought. 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. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ÜSTRA Hannoversche Verkehrsbetriebe will help you shine a light on its historical performance.
How Is ÜSTRA Hannoversche Verkehrsbetriebe's Revenue Growth Trending?
ÜSTRA Hannoversche Verkehrsbetriebe's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.7%. As a result, revenue from three years ago have also fallen 26% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 27% shows it's an unpleasant look.
In light of this, it's alarming that ÜSTRA Hannoversche Verkehrsbetriebe's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.
The Key Takeaway
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've established that ÜSTRA Hannoversche Verkehrsbetriebe currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.
It is also worth noting that we have found 2 warning signs for ÜSTRA Hannoversche Verkehrsbetriebe (1 shouldn't be ignored!) that you need to take into consideration.
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.
