Swissnet AG (FRA:81D) Stock's 26% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The Swissnet AG (FRA:81D) share price has fared very poorly over the last month, falling by a substantial 26%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 27% share price drop.

Even after such a large drop in price, it's still not a stretch to say that Swissnet's price-to-sales (or "P/S") ratio of 2x right now seems quite "middle-of-the-road" compared to the Software industry in Germany, seeing as it matches the P/S ratio of the wider industry. 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?

Recent times have been advantageous for Swissnet as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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.

How Is Swissnet's Revenue Growth Trending?

In order to justify its P/S ratio, Swissnet would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 104%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 42% per annum during the coming three years according to the three analysts following the company. With the industry only predicted to deliver 13% per year, the company is positioned for a stronger revenue result.

In light of this, it's curious that Swissnet's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

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

Following Swissnet's share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

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. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

You need to take note of risks, for example - Swissnet has 3 warning signs (and 1 which shouldn't be ignored) we think 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.