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Market Might Still Lack Some Conviction On Hensoldt AG (ETR:5UH) Even After 26% Share Price Boost
Hensoldt AG (ETR:5UH) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 34%.
Although its price has surged higher, there still wouldn't be many who think Hensoldt's price-to-sales (or "P/S") ratio of 2x is worth a mention when it essentially matches the median P/S in Germany's Aerospace & Defense industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for Hensoldt
What Does Hensoldt's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, Hensoldt has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Hensoldt will help you uncover what's on the horizon.How Is Hensoldt's Revenue Growth Trending?
Hensoldt's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 55% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 15% per annum as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 13% each year growth forecast for the broader industry.
With this information, we find it interesting that Hensoldt is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.
What Does Hensoldt's P/S Mean For Investors?
Hensoldt appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.
Despite enticing revenue growth figures that outpace the industry, Hensoldt's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
Plus, you should also learn about these 3 warning signs we've spotted with Hensoldt (including 1 which makes us a bit uncomfortable).
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.
Valuation is complex, but we're here to simplify it.
Discover if Hensoldt might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
About XTRA:HAG
Hensoldt
HENSOLDT AG, together with its subsidiaries, provides defense and security electronic sensor solutions worldwide.
High growth potential with adequate balance sheet.