Fernheizwerk Neukölln Aktiengesellschaft (FRA:FHW) Might Not Be As Mispriced As It Looks After Plunging 26%

Fernheizwerk Neukölln Aktiengesellschaft (FRA:FHW) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 18% in that time.

After such a large drop in price, Fernheizwerk Neukölln may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the Water Utilities industry in Germany have P/S ratios greater than 1.8x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Fernheizwerk Neukölln

How Has Fernheizwerk Neukölln Performed Recently?

Fernheizwerk Neukölln certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on Fernheizwerk Neukölln will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Fernheizwerk Neukölln's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Fernheizwerk Neukölln?

The only time you'd be truly comfortable seeing a P/S as low as Fernheizwerk Neukölln's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 34%. The strong recent performance means it was also able to grow revenue by 116% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 7.8%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that Fernheizwerk Neukölln is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Fernheizwerk Neukölln's P/S

Fernheizwerk Neukölln's recently weak share price has pulled its P/S back below other Water Utilities companies. 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're very surprised to see Fernheizwerk Neukölln currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Before you settle on your opinion, we've discovered 3 warning signs for Fernheizwerk Neukölln (1 is significant!) that you should be aware of.

If these risks are making you reconsider your opinion on Fernheizwerk Neukölln, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.