After Leaping 25% Softing AG (ETR:SYT) Shares Are Not Flying Under The Radar

Softing AG (ETR:SYT) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.9% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Softing's price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Electronic industry in Germany, where the median P/S ratio is around 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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View our latest analysis for Softing

How Softing Has Been Performing

Softing 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 moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Softing.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. The last three years don't look nice either as the company has shrunk revenue by 1.4% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 6.3% per year as estimated by the only analyst watching the company. With the industry predicted to deliver 7.8% growth per annum, the company is positioned for a comparable revenue result.

With this information, we can see why Softing is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

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

Softing's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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 seen that Softing maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Softing that you should be aware of.

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.