OT Logistics S.A.'s (WSE:OTS) 27% Share Price Plunge Could Signal Some Risk

To the annoyance of some shareholders, OT Logistics S.A. (WSE:OTS) shares are down a considerable 27% 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 68% share price decline.

Although its price has dipped substantially, there still wouldn't be many who think OT Logistics' price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Poland's Shipping industry is similar at about 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for OT Logistics

How Has OT Logistics Performed Recently?

For instance, OT Logistics' receding revenue in recent times would have to be some food for thought. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on OT Logistics will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For OT Logistics?

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

Retrospectively, the last year delivered a frustrating 49% decrease to the company's top line. As a result, revenue from three years ago have also fallen 64% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 0.03% shows it's an unpleasant look.

With this in mind, we find it worrying that OT Logistics' P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

With its share price dropping off a cliff, the P/S for OT Logistics looks to be in line with the rest of the Shipping industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

The fact that OT Logistics currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You should always think about risks. Case in point, we've spotted 5 warning signs for OT Logistics you should be aware of, and 1 of them is significant.

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).

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.