Lacklustre Performance Is Driving Koninklijke Philips N.V.'s (AMS:PHIA) Low P/S

With a price-to-sales (or "P/S") ratio of 1.1x Koninklijke Philips N.V. (AMS:PHIA) may be sending very bullish signals at the moment, given that almost half of all the Medical Equipment companies in the Netherlands have P/S ratios greater than 3.6x and even P/S higher than 10x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Koninklijke Philips

How Koninklijke Philips Has Been Performing

There hasn't been much to differentiate Koninklijke Philips' and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on Koninklijke Philips will be hoping that this isn't the case.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Koninklijke Philips' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a decent 6.8% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 4.9% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 4.0% each year over the next three years. That's shaping up to be materially lower than the 9.2% per annum growth forecast for the broader industry.

With this information, we can see why Koninklijke Philips is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Koninklijke Philips' P/S?

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.

As expected, our analysis of Koninklijke Philips' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Koninklijke Philips (1 shouldn't be ignored!) that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.