Lacklustre Performance Is Driving Agfa-Gevaert NV's (EBR:AGFB) 25% Price Drop

Agfa-Gevaert NV (EBR:AGFB) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 19% in that time.

Since its price has dipped substantially, Agfa-Gevaert's price-to-sales (or "P/S") ratio of 0.1x might make it look like a strong buy right now compared to the wider Healthcare Services industry in Belgium, where around half of the companies have P/S ratios above 2.8x and even P/S above 6x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Agfa-Gevaert

How Has Agfa-Gevaert Performed Recently?

While the industry has experienced revenue growth lately, Agfa-Gevaert's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. 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 Agfa-Gevaert.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Agfa-Gevaert would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 23% drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 2.4% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 11% per annum, which is noticeably more attractive.

With this information, we can see why Agfa-Gevaert 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.

The Bottom Line On Agfa-Gevaert's P/S

Having almost fallen off a cliff, Agfa-Gevaert's share price has pulled its P/S way down as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Agfa-Gevaert maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Agfa-Gevaert is showing 1 warning sign in our investment analysis, you should know about.

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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.