What Heidelberger Druckmaschinen Aktiengesellschaft's (ETR:HDD) 34% Share Price Gain Is Not Telling You

Heidelberger Druckmaschinen Aktiengesellschaft (ETR:HDD) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 9.6% isn't as impressive.

Although its price has surged higher, it's still not a stretch to say that Heidelberger Druckmaschinen's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Machinery industry in Germany, where the median P/S ratio is around 0.5x. 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.

View our latest analysis for Heidelberger Druckmaschinen

What Does Heidelberger Druckmaschinen's P/S Mean For Shareholders?

Heidelberger Druckmaschinen hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability 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, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.6%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 6.2% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 4.9% per year during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 15% each year growth forecast for the broader industry.

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. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

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

Heidelberger Druckmaschinen 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.

Our look at the analysts forecasts of Heidelberger Druckmaschinen's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Heidelberger Druckmaschinen with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Heidelberger Druckmaschinen, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.