Outokumpu Oyj's (HEL:OUT1V) P/S Still Appears To Be Reasonable

With a median price-to-sales (or "P/S") ratio of close to 0.7x in the Metals and Mining industry in Finland, you could be forgiven for feeling indifferent about Outokumpu Oyj's (HEL:OUT1V) P/S ratio of 0.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Outokumpu Oyj

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

Outokumpu Oyj could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. 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 Outokumpu Oyj's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Outokumpu Oyj's Revenue Growth Trending?

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

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 18%. As a result, revenue from three years ago have also fallen 7.1% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 3.6% per annum as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 4.0% per annum, which is not materially different.

In light of this, it's understandable that Outokumpu Oyj's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Outokumpu Oyj's P/S

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.

Our look at Outokumpu Oyj'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. Unless these conditions change, they will continue to support the share price at these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Outokumpu Oyj that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.