What You Can Learn From Smartbroker Holding AG's (ETR:SB1) P/S

When you see that almost half of the companies in the Interactive Media and Services industry in Germany have price-to-sales ratios (or "P/S") below 1.6x, Smartbroker Holding AG (ETR:SB1) looks to be giving off strong sell signals with its 4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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Check out our latest analysis for Smartbroker Holding

What Does Smartbroker Holding's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Smartbroker Holding has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Smartbroker Holding?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Smartbroker Holding's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.0% last year. The solid recent performance means it was also able to grow revenue by 7.0% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 14% per year during the coming three years according to the dual analysts following the company. That's shaping up to be materially higher than the 10% per annum growth forecast for the broader industry.

With this information, we can see why Smartbroker Holding is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Smartbroker Holding shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Smartbroker Holding with six simple checks on some of these key factors.

If you're unsure about the strength of Smartbroker Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.