Investors Continue Waiting On Sidelines For Norrhydro Group Oyj (HEL:NORRH)

It's not a stretch to say that Norrhydro Group Oyj's (HEL:NORRH) price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" for companies in the Machinery industry in Finland, where the median P/S ratio is around 0.7x. 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.

View our latest analysis for Norrhydro Group Oyj

What Does Norrhydro Group Oyj's P/S Mean For Shareholders?

Norrhydro Group Oyj has been struggling lately as its revenue has declined faster 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. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Norrhydro Group Oyj's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Norrhydro Group Oyj's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 20%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 12% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 28% per annum over the next three years. With the industry only predicted to deliver 4.2% each year, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Norrhydro Group Oyj is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Looking at Norrhydro Group Oyj's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Norrhydro Group Oyj (2 can't be ignored!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.