SUSE S.A.'s (ETR:SUSE) Share Price Is Still Matching Investor Opinion Despite 30% Slump

SUSE S.A. (ETR:SUSE) shares have retraced a considerable 30% in the last month, reversing a fair amount of their solid recent performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 36% in that time.

Even after such a large drop in price, when almost half of the companies in Germany's Software industry have price-to-sales ratios (or "P/S") below 2x, you may still consider SUSE as a stock probably not worth researching with its 2.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for SUSE

What Does SUSE's P/S Mean For Shareholders?

SUSE could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For SUSE?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 5.9% last year. Pleasingly, revenue has also lifted 50% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 6.4% over the next year. With the industry only predicted to deliver 3.6%, the company is positioned for a stronger revenue result.

With this information, we can see why SUSE is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does SUSE's P/S Mean For Investors?

Despite the recent share price weakness, SUSE's P/S remains higher than most other companies in the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that SUSE maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - SUSE has 2 warning signs (and 1 which is concerning) we think you should know about.

If you're unsure about the strength of SUSE's 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.