Investors Give Shape Robotics A/S (CPH:SHAPE) Shares A 25% Hiding

Shape Robotics A/S (CPH:SHAPE) shares have had a horrible month, losing 25% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 39% share price drop.

In spite of the heavy fall in price, there still wouldn't be many who think Shape Robotics' price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S in Denmark's Consumer Services industry is similar at about 1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for Shape Robotics

How Has Shape Robotics Performed Recently?

Recent times have been quite advantageous for Shape Robotics as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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 Shape Robotics' earnings, revenue and cash flow.

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

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

Taking a look back first, we see that the company grew revenue by an impressive 47% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 5.9% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Shape Robotics' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Shape Robotics' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We didn't quite envision Shape Robotics' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Shape Robotics (2 make us uncomfortable) you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.