Getting In Cheap On Componenta Corporation (HEL:CTH1V) Might Be Difficult

With a median price-to-sales (or "P/S") ratio of close to 0.6x in the Machinery industry in Finland, you could be forgiven for feeling indifferent about Componenta Corporation's (HEL:CTH1V) P/S ratio of 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Componenta

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

Componenta hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Componenta'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?

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

Retrospectively, the last year delivered a frustrating 6.7% decrease to the company's top line. Even so, admirably revenue has lifted 45% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 4.6% each year during the coming three years according to the lone analyst following the company. That's shaping up to be similar to the 4.3% each year growth forecast for the broader industry.

In light of this, it's understandable that Componenta's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Componenta'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.

A Componenta's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Machinery industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

You always need to take note of risks, for example - Componenta has 2 warning signs we think you should be aware of.

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