Revenues Working Against ams-OSRAM AG's (VTX:AMS) Share Price Following 26% Dive

ams-OSRAM AG (VTX:AMS) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 76% loss during that time.

After such a large drop in price, ams-OSRAM may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Semiconductor industry in Switzerland have P/S ratios greater than 1.9x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for ams-OSRAM

How Has ams-OSRAM Performed Recently?

With revenue that's retreating more than the industry's average of late, ams-OSRAM has been very sluggish. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. You'd much rather the company improve its revenue performance if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 17% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 33% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 5.3% per year during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 15% per annum, which is noticeably more attractive.

With this information, we can see why ams-OSRAM 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 Final Word

ams-OSRAM's recently weak share price has pulled its P/S back below other Semiconductor companies. 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.

As expected, our analysis of ams-OSRAM'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. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 2 warning signs for ams-OSRAM you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.