Risks To Shareholder Returns Are Elevated At These Prices For Sidma Steel S.A. (ATH:SIDMA)

There wouldn't be many who think Sidma Steel S.A.'s (ATH:SIDMA) price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S for the Metals and Mining industry in Greece is similar at about 0.3x. 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.

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See our latest analysis for Sidma Steel

How Has Sidma Steel Performed Recently?

As an illustration, revenue has deteriorated at Sidma Steel over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Sidma Steel, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Sidma Steel?

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

Retrospectively, the last year delivered a frustrating 7.9% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 18% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for a contraction of 0.3% shows the industry is more attractive on an annualised basis regardless.

In light of this, it's somewhat peculiar that Sidma Steel's P/S sits in line with the majority of other companies. In general, when revenue shrink rapidly the P/S often shrinks too, which could set up shareholders for future disappointment. There's potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Sidma Steel revealed its sharp three-year contraction in revenue isn't impacting its P/S as much as we would have predicted, given the industry is set to shrink less severely. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. We're also cautious about the company's ability to stay its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. This would place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 3 warning signs for Sidma Steel (1 is a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of Sidma Steel'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.