There's No Escaping Nordex SE's (ETR:NDX1) Muted Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.4x Nordex SE (ETR:NDX1) is a stock worth checking out, seeing as almost half of all the Electrical companies in Germany have P/S ratios greater than 1x and even P/S higher than 3x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Nordex

How Nordex Has Been Performing

There hasn't been much to differentiate Nordex's and the industry's revenue growth lately. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on Nordex will be hoping that this isn't the case.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Nordex would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 15% gain to the company's revenues. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 6.4% per year as estimated by the eleven analysts watching the company. With the industry predicted to deliver 9.6% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Nordex's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Nordex maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Nordex with six simple checks.

If you're unsure about the strength of Nordex'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