Dr. Hönle AG's (ETR:HNL) Popularity With Investors Is Clear

There wouldn't be many who think Dr. Hönle AG's (ETR:HNL) price-to-sales (or "P/S") ratio of 0.9x is worth a mention when the median P/S for the Electrical industry in Germany is similar at about 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Dr. Hönle

How Has Dr. Hönle Performed Recently?

Dr. Hönle has been doing a reasonable job lately as its revenue hasn't declined as much as most other companies. Perhaps the market is expecting future revenue performance fall back in line with the poorer industry performance, which has kept the P/S contained. You'd much rather the company continue improving its revenue if you still believe in the business. But at the very least, you'd be hoping the company doesn't fall back into the pack if your plan is to pick up some stock while it's not in favour.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Retrospectively, the last year delivered a frustrating 8.6% decrease to the company's top line. 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 13% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 7.9% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 9.5% per annum, which is not materially different.

With this information, we can see why Dr. Hönle is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Dr. Hönle's P/S

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.

We've seen that Dr. Hönle maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Plus, you should also learn about this 1 warning sign we've spotted with Dr. Hönle.

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.