11880 Solutions AG's (ETR:TGT) 41% Share Price Surge Not Quite Adding Up

The 11880 Solutions AG (ETR:TGT) share price has done very well over the last month, posting an excellent gain of 41%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.9% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about 11880 Solutions' P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Commercial Services 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.

See our latest analysis for 11880 Solutions

How Has 11880 Solutions Performed Recently?

We'd have to say that with no tangible growth over the last year, 11880 Solutions' revenue has been unimpressive. Perhaps the market believes the recent run-of-the-mill revenue performance isn't enough to outperform the industry, which has kept the P/S muted. If not, then existing shareholders may be feeling hopeful about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on 11880 Solutions' earnings, revenue and cash flow.

How Is 11880 Solutions' Revenue Growth Trending?

11880 Solutions' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period was better as it's delivered a decent 12% overall rise in revenue. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 6.8% shows it's noticeably less attractive.

With this in mind, we find it intriguing that 11880 Solutions' P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Key Takeaway

Its shares have lifted substantially and now 11880 Solutions' 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 examination of 11880 Solutions revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Plus, you should also learn about these 4 warning signs we've spotted with 11880 Solutions (including 2 which shouldn't be ignored).

If these risks are making you reconsider your opinion on 11880 Solutions, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.