Investor Optimism Abounds TAKKT AG (ETR:TTK) But Growth Is Lacking

There wouldn't be many who think TAKKT AG's (ETR:TTK) price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S for the Commercial Services industry in Germany is similar at about 0.4x. 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.

Check out our latest analysis for TAKKT

What Does TAKKT's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, TAKKT's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Do Revenue Forecasts Match The P/S Ratio?

TAKKT's 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.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 4.2% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 1.9% each year over the next three years. With the industry predicted to deliver 42% growth per annum, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that TAKKT'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 TAKKT's P/S Mean For Investors?

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 look at the analysts forecasts of TAKKT's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with TAKKT, and understanding should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.