RENK Group AG's (FRA:R3NK) P/S Is Still On The Mark Following 50% Share Price Bounce

Despite an already strong run, RENK Group AG (FRA:R3NK) shares have been powering on, with a gain of 50% in the last thirty days. The last 30 days bring the annual gain to a very sharp 35%.

After such a large jump in price, you could be forgiven for thinking RENK Group is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3.3x, considering almost half the companies in Germany's Machinery industry have P/S ratios below 0.6x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for RENK Group

What Does RENK Group's P/S Mean For Shareholders?

RENK Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think RENK Group's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

RENK Group's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. The strong recent performance means it was also able to grow revenue by 51% in total over the last three years. 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 should grow by 16% per year over the next three years. That's shaping up to be materially higher than the 12% each year growth forecast for the broader industry.

With this information, we can see why RENK Group is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does RENK Group's P/S Mean For Investors?

The strong share price surge has lead to RENK Group's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that RENK Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Machinery industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for RENK Group (1 doesn't sit too well with us!) that you should be aware of.

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.