There's Reason For Concern Over niiio finance group AG's (ETR:NIIN) Price

niiio finance group AG's (ETR:NIIN) price-to-sales (or "P/S") ratio of 1.3x may not look like an appealing investment opportunity when you consider close to half the companies in the IT industry in Germany have P/S ratios below 0.8x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for niiio finance group

What Does niiio finance group's Recent Performance Look Like?

niiio finance group certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is niiio finance group's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 53% gain to the company's top line. The latest three year period has also seen an excellent 116% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 5.5% during the coming year according to the sole analyst following the company. With the industry predicted to deliver 9.8% growth, that's a disappointing outcome.

With this in mind, we find it intriguing that niiio finance group's P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Bottom Line On niiio finance group's P/S

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.

For a company with revenues that are set to decline in the context of a growing industry, niiio finance group's P/S is much higher than we would've anticipated. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with niiio finance group (including 1 which makes us a bit uncomfortable).

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.