Endesa, S.A.'s (BME:ELE) Popularity With Investors Is Clear

There wouldn't be many who think Endesa, S.A.'s (BME:ELE) price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S for the Electric Utilities industry in Spain is very similar. 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.

See our latest analysis for Endesa

What Does Endesa's P/S Mean For Shareholders?

Recent times haven't been great for Endesa as its revenue has been falling quicker than most other companies. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Endesa will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Endesa?

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

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. Even so, admirably revenue has lifted 38% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 3.5% per year over the next three years. With the industry predicted to deliver 2.4% growth per year, the company is positioned for a comparable revenue result.

With this in mind, it makes sense that Endesa's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

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.

Our look at Endesa's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Endesa (of which 1 can't be ignored!) you should know about.

If you're unsure about the strength of Endesa'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.