Südzucker AG's (ETR:SZU) Share Price Not Quite Adding Up

With a median price-to-sales (or "P/S") ratio of close to 0.7x in the Food industry in Germany, you could be forgiven for feeling indifferent about Südzucker AG's (ETR:SZU) P/S ratio of 0.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Our free stock report includes 4 warning signs investors should be aware of before investing in Südzucker. Read for free now.

See our latest analysis for Südzucker

How Südzucker Has Been Performing

While the industry has experienced revenue growth lately, Südzucker's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Südzucker?

In order to justify its P/S ratio, Südzucker would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.8%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 38% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 1.7% per year as estimated by the four analysts watching the company. That's not great when the rest of the industry is expected to grow by 65% per year.

With this information, we find it concerning that Südzucker is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Final Word

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.

Our check of Südzucker's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

You should always think about risks. Case in point, we've spotted 4 warning signs for Südzucker you should be aware of.

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.