Some Confidence Is Lacking In SBF AG (FRA:CY1K) As Shares Slide 28%

Unfortunately for some shareholders, the SBF AG (FRA:CY1K) share price has dived 28% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 86% in the last year.

Even after such a large drop in price, it's still not a stretch to say that SBF's price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" compared to the Electrical industry in Germany, where the median P/S ratio is around 1.3x. 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 SBF

What Does SBF's Recent Performance Look Like?

Recent revenue growth for SBF has been in line with the industry. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

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Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like SBF's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 15% last year. The latest three year period has also seen an excellent 38% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 7.6% per annum during the coming three years according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 12% per year, which is noticeably more attractive.

In light of this, it's curious that SBF's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

SBF's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Our look at the analysts forecasts of SBF'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. A positive change is needed in order to justify the current price-to-sales ratio.

Plus, you should also learn about these 2 warning signs we've spotted with SBF.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.