WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji S.A.'s (WSE:WOD) Shares Lagging The Industry But So Is The Business

With a price-to-sales (or "P/S") ratio of 0.7x WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji S.A. (WSE:WOD) may be sending bullish signals at the moment, given that almost half of all the Water Utilities companies in Poland have P/S ratios greater than 1.8x and even P/S higher than 4x 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 limited.

Check out our latest analysis for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji

What Does WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's Recent Performance Look Like?

WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. The latest three year period has also seen a 24% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 13% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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.

In line with expectations, WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji.

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.

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