Zumtobel Group AG's (VIE:ZAG) Business And Shares Still Trailing The Industry

Zumtobel Group AG's (VIE:ZAG) price-to-sales (or "P/S") ratio of 0.1x might make it look like a buy right now compared to the Electrical industry in Austria, where around half of the companies have P/S ratios above 1.2x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Zumtobel Group

How Zumtobel Group Has Been Performing

While the industry has experienced revenue growth lately, Zumtobel Group's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zumtobel Group.

How Is Zumtobel Group's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Zumtobel Group's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.9%. As a result, revenue from three years ago have also fallen 8.4% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 2.0% each year as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 8.4% each year growth forecast for the broader industry.

With this in consideration, its clear as to why Zumtobel Group's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Zumtobel Group's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Zumtobel Group's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Zumtobel Group, and understanding should be part of your investment process.

If you're unsure about the strength of Zumtobel Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.