Lenzing Aktiengesellschaft (VIE:LNZ) Surges 35% Yet Its Low P/S Is No Reason For Excitement

Lenzing Aktiengesellschaft (VIE:LNZ) shares have had a really impressive month, gaining 35% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 29%.

In spite of the firm bounce in price, when close to half the companies operating in Austria's Chemicals industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Lenzing as an enticing stock to check out with its 0.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Lenzing

How Lenzing Has Been Performing

Recent times have been advantageous for Lenzing as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially 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 Lenzing.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 5.7% last year. Revenue has also lifted 21% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 2.1% per year as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 14% per year, which is noticeably more attractive.

With this information, we can see why Lenzing is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Lenzing's P/S

Despite Lenzing's share price climbing recently, its P/S still lags most other companies. 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.

We've established that Lenzing maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Lenzing that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.