Market Might Still Lack Some Conviction On thyssenkrupp AG (ETR:TKA) Even After 38% Share Price Boost

thyssenkrupp AG (ETR:TKA) shareholders have had their patience rewarded with a 38% share price jump in the last month. The annual gain comes to 284% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, thyssenkrupp's price-to-sales (or "P/S") ratio of 0.2x might still make it look like a buy right now compared to the Metals and Mining industry in Germany, where around half of the companies have P/S ratios above 0.7x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for thyssenkrupp

How thyssenkrupp Has Been Performing

thyssenkrupp could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like thyssenkrupp's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.8%. The last three years don't look nice either as the company has shrunk revenue by 17% 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 seven analysts covering the company suggest revenue should grow by 3.5% per year over the next three years. With the industry predicted to deliver 2.4% growth per annum, the company is positioned for a comparable revenue result.

With this information, we find it odd that thyssenkrupp is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift thyssenkrupp's P/S close to the industry median. 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.

We've seen that thyssenkrupp currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for thyssenkrupp with six simple checks on some of these key factors.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.