Some Confidence Is Lacking In LPKF Laser & Electronics SE's (ETR:LPK) P/S

When you see that almost half of the companies in the Electronic industry in Germany have price-to-sales ratios (or "P/S") below 0.5x, LPKF Laser & Electronics SE (ETR:LPK) looks to be giving off some sell signals with its 1.6x 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 LPKF Laser & Electronics

What Does LPKF Laser & Electronics' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, LPKF Laser & Electronics has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. 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 LPKF Laser & Electronics will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For LPKF Laser & Electronics?

In order to justify its P/S ratio, LPKF Laser & Electronics would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see revenue up by 54% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 10% per year as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 14% per year growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that LPKF Laser & Electronics' 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. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It comes as a surprise to see LPKF Laser & Electronics trade at such a high P/S given the revenue forecasts look less than stellar. 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. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for LPKF Laser & Electronics with six simple checks on some of these key factors.

If you're unsure about the strength of LPKF Laser & Electronics' 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.