There's No Escaping Sensata Technologies Holding plc's (NYSE:ST) Muted Revenues Despite A 37% Share Price Rise

Sensata Technologies Holding plc (NYSE:ST) shareholders are no doubt pleased to see that the share price has bounced 37% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 37% over that time.

Although its price has surged higher, Sensata Technologies Holding's price-to-sales (or "P/S") ratio of 1x might still make it look like a buy right now compared to the Electrical industry in the United States, where around half of the companies have P/S ratios above 2x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

We've discovered 2 warning signs about Sensata Technologies Holding. View them for free.

See our latest analysis for Sensata Technologies Holding

What Does Sensata Technologies Holding's P/S Mean For Shareholders?

Sensata Technologies Holding hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Is There Any Revenue Growth Forecasted For Sensata Technologies Holding?

In order to justify its P/S ratio, Sensata Technologies Holding 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 5.5%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 2.1% each year over the next three years. That's shaping up to be materially lower than the 13% per year growth forecast for the broader industry.

With this information, we can see why Sensata Technologies Holding is trading at a P/S lower than the industry. 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 Sensata Technologies Holding's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Sensata Technologies Holding's P/S close to the industry median. 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.

As we suspected, our examination of Sensata Technologies Holding'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. The company will need a change of fortune to justify the P/S rising higher in the future.

You need to take note of risks, for example - Sensata Technologies Holding has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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

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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.