The Price Is Right For Dr. Hönle AG (ETR:HNL) Even After Diving 26%

Unfortunately for some shareholders, the Dr. Hönle AG (ETR:HNL) share price has dived 26% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Dr. Hönle's price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S in Germany's Electrical industry is similar at about 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Dr. Hönle

What Does Dr. Hönle's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Dr. Hönle's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Dr. Hönle's Revenue Growth Trending?

In order to justify its P/S ratio, Dr. Hönle would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 7.9% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 9.4% per year during the coming three years according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 8.3% each year, which is not materially different.

With this in mind, it makes sense that Dr. Hönle's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

Dr. Hönle's plummeting stock price has brought its P/S back to a similar region as 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.

A Dr. Hönle's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Electrical industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Dr. Hönle (of which 1 is significant!) you should know about.

If you're unsure about the strength of Dr. Hönle's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.