More Unpleasant Surprises Could Be In Store For Koenig & Bauer AG's (ETR:SKB) Shares After Tumbling 27%

The Koenig & Bauer AG (ETR:SKB) share price has fared very poorly over the last month, falling by a substantial 27%. Longer-term shareholders would now have taken a real hit with the stock declining 5.3% in the last year.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Koenig & Bauer's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in Germany is also close to 0.6x. 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.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

View our latest analysis for Koenig & Bauer

How Koenig & Bauer Has Been Performing

The recently shrinking revenue for Koenig & Bauer has been in line with the industry. It seems that few are expecting the company's revenue performance to deviate much from most other companies, which has held the P/S back. You'd much rather the company improve its revenue if you still believe in the business. In saying that, existing shareholders probably aren't too pessimistic about the share price if the company's revenue continues tracking the industry.

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

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 Koenig & Bauer's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 2.0% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 15% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 4.7% per annum during the coming three years according to the six analysts following the company. With the industry predicted to deliver 13% growth each year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Koenig & Bauer's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Koenig & Bauer's P/S Mean For Investors?

Koenig & Bauer's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at the analysts forecasts of Koenig & Bauer's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Plus, you should also learn about this 1 warning sign we've spotted with Koenig & Bauer.

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).

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

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.