Pinning Down Fortum Oyj's (HEL:FORTUM) P/S Is Difficult Right Now

When close to half the companies in the Electric Utilities industry in Finland have price-to-sales ratios (or "P/S") below 0.3x, you may consider Fortum Oyj (HEL:FORTUM) as a stock to potentially avoid with its 1.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Fortum Oyj

How Fortum Oyj Has Been Performing

Recent revenue growth for Fortum Oyj has been in line with the industry. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Fortum Oyj?

The only time you'd be truly comfortable seeing a P/S as high as Fortum Oyj's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 10.0% last year. Still, lamentably revenue has fallen 72% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to plummet, contracting by 9.1% per annum during the coming three years according to the analysts following the company. Meanwhile, the broader industry is forecast to moderate by 0.3% per year, which indicates the company should perform poorly indeed.

With this information, it's strange that Fortum Oyj is trading at a higher P/S in comparison. With revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. There's strong potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Fortum Oyj's P/S

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 Fortum Oyj's analyst forecasts determined that its even shakier outlook against the industry isn't impacting its high P/S anywhere near as much as we would have predicted. Revenue outlooks like this don't typically support a company trading at such an elevated P/S, and if it did, it doesn't usually do it for long. We're also cautious about the company's ability to resist even greater pain to its business from the broader industry turmoil. Unless there's a material improvement in the forecast revenue growth for the company, it's hard to justify the share price at current levels.

Plus, you should also learn about these 3 warning signs we've spotted with Fortum Oyj.

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.