Improved Revenues Required Before SMA Solar Technology AG (ETR:S92) Stock's 26% Jump Looks Justified

SMA Solar Technology AG (ETR:S92) shares have continued their recent momentum with a 26% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 10% over that time.

Even after such a large jump in price, it would still be understandable if you think SMA Solar Technology is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.6x, considering almost half the companies in Germany's Semiconductor industry have P/S ratios above 1.6x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for SMA Solar Technology

How SMA Solar Technology Has Been Performing

Recent times haven't been great for SMA Solar Technology as its revenue has been falling quicker than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. 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.

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

Is There Any Revenue Growth Forecasted For SMA Solar Technology?

The only time you'd be truly comfortable seeing a P/S as low as SMA Solar Technology's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 21%. Still, the latest three year period has seen an excellent 55% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 3.1% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 8.3% per year, which is noticeably more attractive.

With this information, we can see why SMA Solar Technology is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On SMA Solar Technology's P/S

SMA Solar Technology's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of SMA Solar Technology's 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware SMA Solar Technology is showing 2 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.