Take Care Before Jumping Onto Hexagon Purus ASA (OB:HPUR) Even Though It's 27% Cheaper

Unfortunately for some shareholders, the Hexagon Purus ASA (OB:HPUR) share price has dived 27% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 78% share price decline.

Following the heavy fall in price, considering around half the companies operating in Norway's Machinery industry have price-to-sales ratios (or "P/S") above 1.2x, you may consider Hexagon Purus as an solid investment opportunity with its 0.3x 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 limited.

Check out our latest analysis for Hexagon Purus

What Does Hexagon Purus' Recent Performance Look Like?

Recent times have been advantageous for Hexagon Purus as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hexagon Purus.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 269% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 32% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 14% per annum, which is noticeably less attractive.

In light of this, it's peculiar that Hexagon Purus' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

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

Hexagon Purus' P/S has taken a dip along with its share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Hexagon Purus' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Hexagon Purus (at least 2 which don't sit too well with us), and understanding these should be part of your investment process.

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.