Some Shareholders Feeling Restless Over Elecnor, S.A.'s (BME:ENO) P/S Ratio

With a median price-to-sales (or "P/S") ratio of close to 0.6x in the Construction industry in Spain, you could be forgiven for feeling indifferent about Elecnor, S.A.'s (BME:ENO) P/S ratio of 0.5x. 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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See our latest analysis for Elecnor

How Elecnor Has Been Performing

With revenue growth that's inferior to most other companies of late, Elecnor has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Elecnor's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Elecnor's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 7.8% gain to the company's revenues. The latest three year period has also seen a 21% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 1.4% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 4.5% per annum, which is noticeably more attractive.

With this information, we find it interesting that Elecnor is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Elecnor's P/S

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.

Given that Elecnor's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Elecnor that you should be aware of.

If you're unsure about the strength of Elecnor's 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.