thyssenkrupp nucera AG & Co. KGaA's (ETR:NCH2) 26% Share Price Surge Not Quite Adding Up

thyssenkrupp nucera AG & Co. KGaA (ETR:NCH2) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 25% is also fairly reasonable.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about thyssenkrupp nucera KGaA's P/S ratio of 1.6x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Germany is also close to 1.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for thyssenkrupp nucera KGaA

How thyssenkrupp nucera KGaA Has Been Performing

With revenue growth that's inferior to most other companies of late, thyssenkrupp nucera KGaA has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Do Revenue Forecasts Match The P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 18%. Pleasingly, revenue has also lifted 139% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue growth is heading into negative territory, declining 11% over the next year. That's not great when the rest of the industry is expected to grow by 4.3%.

In light of this, it's somewhat alarming that thyssenkrupp nucera KGaA's P/S sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Key Takeaway

Its shares have lifted substantially and now thyssenkrupp nucera KGaA's P/S is back within range of the industry median. 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.

Our check of thyssenkrupp nucera KGaA's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

Before you settle on your opinion, we've discovered 1 warning sign for thyssenkrupp nucera KGaA that you should be aware of.

If you're unsure about the strength of thyssenkrupp nucera KGaA'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.