Hexagon Composites ASA (OB:HEX) Stocks Pounded By 26% But Not Lagging Industry On Growth Or Pricing

To the annoyance of some shareholders, Hexagon Composites ASA (OB:HEX) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Longer-term, the stock has been solid despite a difficult 30 days, gaining 11% in the last year.

Although its price has dipped substantially, it's still not a stretch to say that Hexagon Composites' price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Machinery industry in Norway, where the median P/S ratio is around 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

View our latest analysis for Hexagon Composites

What Does Hexagon Composites' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Hexagon Composites' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Hexagon Composites?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.9%. Even so, admirably revenue has lifted 38% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 16% per annum as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 14% per year, which is not materially different.

With this information, we can see why Hexagon Composites is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Hexagon Composites' P/S?

Hexagon Composites' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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 Hexagon Composites' 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.

Having said that, be aware Hexagon Composites is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Hexagon Composites' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.