Lacklustre Performance Is Driving Voestalpine AG's (VIE:VOE) Low P/S

You may think that with a price-to-sales (or "P/S") ratio of 0.2x Voestalpine AG (VIE:VOE) is a stock worth checking out, seeing as almost half of all the Metals and Mining companies in Austria have P/S ratios greater than 0.7x and even P/S higher than 3x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Voestalpine

How Voestalpine Has Been Performing

Voestalpine hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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 Voestalpine.

How Is Voestalpine's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.1%. Still, the latest three year period has seen an excellent 38% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 1.8% as estimated by the ten analysts watching the company. With the industry predicted to deliver 2.0% growth, that's a disappointing outcome.

With this information, we are not surprised that Voestalpine is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

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.

It's clear to see that Voestalpine maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Voestalpine's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Voestalpine is showing 3 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.