Netfonds AG (FRA:NF4) Doing What It Can To Lift Shares

You may think that with a price-to-sales (or "P/S") ratio of 0.5x Netfonds AG (FRA:NF4) is definitely a stock worth checking out, seeing as almost half of all the Capital Markets companies in Germany have P/S ratios greater than 3x and even P/S above 8x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Netfonds

What Does Netfonds' Recent Performance Look Like?

Netfonds 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. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Netfonds' Revenue Growth Trending?

In order to justify its P/S ratio, Netfonds would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. Even so, admirably revenue has lifted 57% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 8.8% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 1.0% each year, which is noticeably less attractive.

With this information, we find it odd that Netfonds is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Netfonds' P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Netfonds' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Netfonds that you should be aware of.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.