Investors Don't See Light At End Of Lenzing Aktiengesellschaft's (VIE:LNZ) Tunnel

When you see that almost half of the companies in the Chemicals industry in Austria have price-to-sales ratios (or "P/S") above 1x, Lenzing Aktiengesellschaft (VIE:LNZ) looks to be giving off some buy signals with its 0.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Lenzing

How Has Lenzing Performed Recently?

There hasn't been much to differentiate Lenzing's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Lenzing will be hoping that this isn't the case.

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

How Is Lenzing's Revenue Growth Trending?

In order to justify its P/S ratio, Lenzing would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 6.2%. The solid recent performance means it was also able to grow revenue by 29% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 2.5% each year over the next three years. With the industry predicted to deliver 22% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Lenzing is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Lenzing'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.

As expected, our analysis of Lenzing's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about this 1 warning sign we've spotted with Lenzing.

If you're unsure about the strength of Lenzing'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.