ZIM Integrated Shipping Services Ltd. (NYSE:ZIM) Soars 32% But It's A Story Of Risk Vs Reward

Despite an already strong run, ZIM Integrated Shipping Services Ltd. (NYSE:ZIM) shares have been powering on, with a gain of 32% in the last thirty days. The last 30 days bring the annual gain to a very sharp 51%.

Although its price has surged higher, it would still be understandable if you think ZIM Integrated Shipping Services is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.4x, considering almost half the companies in the United States' Shipping industry have P/S ratios above 1.4x. 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 ZIM Integrated Shipping Services

What Does ZIM Integrated Shipping Services' P/S Mean For Shareholders?

Recent times haven't been great for ZIM Integrated Shipping Services as its revenue has been falling quicker than most other companies. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. You'd much rather the company improve its revenue performance if you still believe in the business. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ZIM Integrated Shipping Services.

Do Revenue Forecasts Match The Low P/S Ratio?

ZIM Integrated Shipping Services' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 48%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 8.9% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 0.4%, which is noticeably less attractive.

In light of this, it's peculiar that ZIM Integrated Shipping Services' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does ZIM Integrated Shipping Services' P/S Mean For Investors?

ZIM Integrated Shipping Services' stock price has surged recently, but its but its P/S still remains modest. 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.

To us, it seems ZIM Integrated Shipping Services currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

And what about other risks? Every company has them, and we've spotted 2 warning signs for ZIM Integrated Shipping Services you should know about.

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).

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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.