Not Many Are Piling Into Roof Renovation S.A. (WSE:RRH) Stock Yet As It Plummets 26%

To the annoyance of some shareholders, Roof Renovation S.A. (WSE:RRH) shares are down a considerable 26% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 72% share price decline.

Even after such a large drop in price, there still wouldn't be many who think Roof Renovation's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Poland's Media industry is similar at about 0.9x. 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.

See our latest analysis for Roof Renovation

What Does Roof Renovation's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Roof Renovation over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Roof Renovation's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 65%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

Comparing that to the industry, which is only predicted to deliver 5.6% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Roof Renovation is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does Roof Renovation's P/S Mean For Investors?

Following Roof Renovation's share price tumble, its P/S is just clinging on to the industry median 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.

To our surprise, Roof Renovation revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Roof Renovation, and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Roof Renovation, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.

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