Noratis AG (ETR:NUVA) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 50% share price decline.
Following the heavy fall in price, Noratis' price-to-sales (or "P/S") ratio of 0.6x might make it look like a strong buy right now compared to the wider Real Estate industry in Germany, where around half of the companies have P/S ratios above 3x and even P/S above 8x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Noratis
What Does Noratis' Recent Performance Look Like?
Recent times haven't been great for Noratis as its revenue has been falling quicker than most other companies. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
Want the full picture on analyst estimates for the company? Then our free report on Noratis will help you uncover what's on the horizon.Do Revenue Forecasts Match The Low P/S Ratio?
Noratis' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 38%. Regardless, revenue has managed to lift by a handy 21% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.
Shifting to the future, estimates from the two analysts covering the company suggest revenue growth will be highly resilient over the next three years growing by 30% per year. With the rest of the industry predicted to shrink by 17% per year, that would be a fantastic result.
In light of this, it's quite peculiar that Noratis' P/S sits below the majority of other companies. It looks like most investors aren't convinced at all that the company can achieve positive future growth in the face of a shrinking broader industry.
The Bottom Line On Noratis' P/S
Having almost fallen off a cliff, Noratis' share price has pulled its P/S way down as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
We've established that Noratis currently trades on a much lower than expected P/S since its growth forecasts are potentially beating a struggling industry. When we see a superior revenue outlook with some actual growth, we can only assume investor uncertainty is what's been suppressing the P/S figures. Amidst challenging industry conditions, a key concern is whether the company can sustain its superior revenue growth trajectory. So, the risk of a price drop looks to be subdued, but investors seem to think future revenue could see a lot of volatility.
It is also worth noting that we have found 3 warning signs for Noratis (2 shouldn't be ignored!) that you need to take into consideration.
If these risks are making you reconsider your opinion on Noratis, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
About XTRA:NUVA
Noratis
A real estate company, invests in, develops, manages, and sells residential property portfolios in Germany.
High growth potential with adequate balance sheet.