Even With A 35% Surge, Cautious Investors Are Not Rewarding AdCapital AG's (FRA:ADC) Performance Completely

AdCapital AG (FRA:ADC) shares have continued their recent momentum with a 35% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 52%.

Even after such a large jump in price, AdCapital may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Capital Markets industry in Germany have P/S ratios greater than 3.3x and even P/S higher than 13x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for AdCapital

What Does AdCapital's Recent Performance Look Like?

The recent revenue growth at AdCapital would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on AdCapital will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For AdCapital?

AdCapital's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.2% last year. The solid recent performance means it was also able to grow revenue by 12% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 2.3% shows it's a great look while it lasts.

With this information, we find it very odd that AdCapital is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

The Key Takeaway

Shares in AdCapital have risen appreciably however, its P/S is still subdued. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Looking at the figures, it's surprising to see AdCapital currently trades on a much lower than expected P/S since its recent three-year revenue growth is beating forecasts for a struggling industry. We think potential risks might be placing significant pressure on the P/S ratio and share price. The most obvious risk is that its revenue trajectory may not keep outperforming under these tough industry conditions. At least the risk of a price drop looks to be subdued, but investors think future revenue could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with AdCapital (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.