Swissnet AG (FRA:81D) Might Not Be As Mispriced As It Looks

With a median price-to-sales (or "P/S") ratio of close to 2.2x in the Software industry in Germany, you could be forgiven for feeling indifferent about Swissnet AG's (FRA:81D) P/S ratio of 2.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Swissnet

What Does Swissnet's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Swissnet has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Swissnet?

The only time you'd be comfortable seeing a P/S like Swissnet's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 104% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 42% per annum over the next three years. That's shaping up to be materially higher than the 13% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that Swissnet's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Swissnet's P/S?

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 Swissnet currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Swissnet you should be aware of, and 1 of them is a bit concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.