Why Investors Shouldn't Be Surprised By Tele Columbus AG's (HMSE:TC1) 33% Share Price Plunge

To the annoyance of some shareholders, Tele Columbus AG (HMSE:TC1) shares are down a considerable 33% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 62% share price decline.

Following the heavy fall in price, considering around half the companies operating in Germany's Media industry have price-to-sales ratios (or "P/S") above 0.9x, you may consider Tele Columbus as an solid investment opportunity with its 0.1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Tele Columbus

How Tele Columbus Has Been Performing

Tele Columbus' revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on Tele Columbus will be hoping that this isn't the case.

Want the full picture on analyst estimates for the company? Then our free report on Tele Columbus will help you uncover what's on the horizon.

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 Tele Columbus' to be considered reasonable.

Retrospectively, the last year delivered a decent 3.9% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 2.9% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 0.5% each year during the coming three years according to the only analyst following the company. With the industry predicted to deliver 5.1% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Tele Columbus is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Tele Columbus' P/S

The southerly movements of Tele Columbus' shares means its P/S is now sitting at a pretty low level. 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.

As we suspected, our examination of Tele Columbus' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Tele Columbus that you need to be mindful of.

If you're unsure about the strength of Tele Columbus' 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.