Further Upside For Wolftank Group AG (ETR:WAH) Shares Could Introduce Price Risks After 26% Bounce

Those holding Wolftank Group AG (ETR:WAH) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 34% over that time.

Although its price has surged higher, there still wouldn't be many who think Wolftank Group's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Germany's Commercial Services industry is similar at about 0.3x. 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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Check out our latest analysis for Wolftank Group

How Has Wolftank Group Performed Recently?

Wolftank Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. 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 Wolftank Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Wolftank Group's Revenue Growth Trending?

In order to justify its P/S ratio, Wolftank Group would need to produce growth that's similar to 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 has seen an excellent 113% overall rise in revenue, in spite of its uninspiring short-term performance. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 6.7% each year over the next three years. That's shaping up to be materially higher than the 4.0% each year growth forecast for the broader industry.

In light of this, it's curious that Wolftank Group's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Its shares have lifted substantially and now Wolftank Group's P/S is back within range of the industry median. 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.

Looking at Wolftank Group's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

You always need to take note of risks, for example - Wolftank Group has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Wolftank Group, 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.