GrafTech International Ltd. (NYSE:EAF) Shares Fly 30% But Investors Aren't Buying For Growth

GrafTech International Ltd. (NYSE:EAF) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 69% share price decline over the last year.

Even after such a large jump in price, GrafTech International may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.7x, considering almost half of all companies in the Electrical industry in the United States have P/S ratios greater than 1.8x and even P/S higher than 4x aren't out of the ordinary. 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 GrafTech International

How GrafTech International Has Been Performing

GrafTech International could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is GrafTech International's Revenue Growth Trending?

In order to justify its P/S ratio, GrafTech International would need to produce sluggish growth that's trailing 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 52%. The last three years don't look nice either as the company has shrunk revenue by 49% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 15% per annum during the coming three years according to the five analysts following the company. With the industry predicted to deliver 21% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that GrafTech International's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does GrafTech International's P/S Mean For Investors?

GrafTech International's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of GrafTech International's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for GrafTech International (1 can't be ignored!) that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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.