Some Confidence Is Lacking In Cellnex Telecom, S.A.'s (BME:CLNX) P/S

Cellnex Telecom, S.A.'s (BME:CLNX) price-to-sales (or "P/S") ratio of 5.7x may look like a poor investment opportunity when you consider close to half the companies in the Telecom industry in Spain have P/S ratios below 1.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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View our latest analysis for Cellnex Telecom

What Does Cellnex Telecom's Recent Performance Look Like?

Recent times have been advantageous for Cellnex Telecom as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Cellnex Telecom's Revenue Growth Trending?

In order to justify its P/S ratio, Cellnex Telecom would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.0% last year. The latest three year period has also seen an excellent 67% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 4.9% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 8.4% per annum, which is noticeably more attractive.

In light of this, it's alarming that Cellnex Telecom's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Cellnex Telecom, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Cellnex Telecom with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Cellnex Telecom, 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.