There's No Escaping KraussMaffei Company Limited's (SHSE:600579) Muted Revenues Despite A 36% Share Price Rise

KraussMaffei Company Limited (SHSE:600579) shares have had a really impressive month, gaining 36% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 34%.

In spite of the firm bounce in price, KraussMaffei may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.4x, since almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.7x and even P/S higher than 5x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for KraussMaffei

How Has KraussMaffei Performed Recently?

KraussMaffei has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on KraussMaffei's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For KraussMaffei?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like KraussMaffei's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. As a result, it also grew revenue by 19% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 28% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why KraussMaffei's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

KraussMaffei's recent share price jump still sees fails to bring its P/S alongside the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

In line with expectations, KraussMaffei maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for KraussMaffei that we have uncovered.

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.