Dätwyler Holding AG's (VTX:DAE) Shares Climb 26% But Its Business Is Yet to Catch Up

Dätwyler Holding AG (VTX:DAE) shareholders have had their patience rewarded with a 26% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

Since its price has surged higher, given close to half the companies operating in Switzerland's Machinery industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Dätwyler Holding as a stock to potentially avoid with its 2.3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Dätwyler Holding

What Does Dätwyler Holding's Recent Performance Look Like?

There hasn't been much to differentiate Dätwyler Holding's and the industry's retreating revenue lately. One possibility is that the P/S ratio is high because investors think the company can turn things around and break free from the broader downward trend in revenue. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Dätwyler Holding's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as high as Dätwyler Holding's is when the company's growth is on track to outshine the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.1%. Regardless, revenue has managed to lift by a handy 9.4% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 5.9% per annum during the coming three years according to the five analysts following the company. With the industry predicted to deliver 5.4% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's curious that Dätwyler Holding's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Dätwyler Holding's P/S Mean For Investors?

Dätwyler Holding shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

Given Dätwyler Holding's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 5 warning signs for Dätwyler Holding that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.