CLERHP Estructuras, S.A.'s (BME:CLR) Price In Tune With Revenues

When you see that almost half of the companies in the Construction industry in Spain have price-to-sales ratios (or "P/S") below 0.6x, CLERHP Estructuras, S.A. (BME:CLR) looks to be giving off strong sell signals with its 4.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for CLERHP Estructuras

What Does CLERHP Estructuras' Recent Performance Look Like?

CLERHP Estructuras could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

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How Is CLERHP Estructuras' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as CLERHP Estructuras' is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 47% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 918% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 5.0%, which is noticeably less attractive.

With this in mind, it's not hard to understand why CLERHP Estructuras' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of CLERHP Estructuras' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You always need to take note of risks, for example - CLERHP Estructuras has 1 warning sign we think you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.