Revenues Not Telling The Story For Basler Aktiengesellschaft (ETR:BSL) After Shares Rise 27%

Basler Aktiengesellschaft (ETR:BSL) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 55% share price drop in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Basler is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.7x, considering almost half the companies in Germany's Electronic industry have P/S ratios below 0.6x. 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 Basler

How Basler Has Been Performing

Basler hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Basler's Revenue Growth Trending?

Basler's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 12%. Still, the latest three year period has seen an excellent 34% overall rise in revenue, in spite of its unsatisfying short-term performance. 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.

Turning to the outlook, the next three years should generate growth of 9.0% per annum as estimated by the five analysts watching the company. With the industry predicted to deliver 32% growth per annum, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Basler's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

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

Basler's P/S is on the rise since its shares have risen strongly. 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 concluded that Basler currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 1 warning sign for Basler that we have uncovered.

If you're unsure about the strength of Basler'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.