LS telcom AG's (ETR:LSX) Price Is Right But Growth Is Lacking

LS telcom AG's (ETR:LSX) price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Software industry in Germany, where around half of the companies have P/S ratios above 1.9x and even P/S above 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for LS telcom

What Does LS telcom's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, LS telcom's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, LS telcom would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 18%. Even so, admirably revenue has lifted 52% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 0.2% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 11%, which is noticeably more attractive.

With this information, we can see why LS telcom 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.

What Does LS telcom's P/S Mean For Investors?

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.

We've established that LS telcom maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for LS telcom that you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.