Why Investors Shouldn't Be Surprised By Dr. Hönle AG's (ETR:HNL) P/S

It's not a stretch to say that Dr. Hönle AG's (ETR:HNL) price-to-sales (or "P/S") ratio of 0.9x seems quite "middle-of-the-road" for Electrical companies in Germany, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Dr. Hönle

How Dr. Hönle Has Been Performing

Dr. Hönle 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. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. 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?

Dr. Hönle'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.

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 7.5%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 8.9% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 9.6% per annum, 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.

What We Can Learn From Dr. Hönle's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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. 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. Unless these conditions change, they will continue to support the share price at these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for Dr. Hönle you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com