Heidelberger Druckmaschinen Aktiengesellschaft's (ETR:HDD) 28% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, Heidelberger Druckmaschinen Aktiengesellschaft (ETR:HDD) shares have been powering on, with a gain of 28% in the last thirty days. The annual gain comes to 135% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Heidelberger Druckmaschinen's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in Germany is also close to 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Heidelberger Druckmaschinen

How Has Heidelberger Druckmaschinen Performed Recently?

Heidelberger Druckmaschinen certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Heidelberger Druckmaschinen's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.4% last year. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 2.1% per year during the coming three years according to the three analysts following the company. With the industry predicted to deliver 28% growth per annum, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Heidelberger Druckmaschinen is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Heidelberger Druckmaschinen's P/S?

Heidelberger Druckmaschinen's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given that Heidelberger Druckmaschinen's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Before you take the next step, you should know about the 2 warning signs for Heidelberger Druckmaschinen (1 doesn't sit too well with us!) that we have uncovered.

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.