ZIM Integrated Shipping Services Ltd.'s (NYSE:ZIM) P/S Is Still On The Mark Following 30% Share Price Bounce

ZIM Integrated Shipping Services Ltd. (NYSE:ZIM) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 79%.

Even after such a large jump in price, it's still not a stretch to say that ZIM Integrated Shipping Services' price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Shipping industry in the United States, where the median P/S ratio is around 0.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for ZIM Integrated Shipping Services

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

Recent times have been advantageous for ZIM Integrated Shipping Services as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on ZIM Integrated Shipping Services will help you uncover what's on the horizon.

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 21%. Still, revenue has fallen 13% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 5.6% during the coming year according to the six analysts following the company. With the rest of the industry predicted to shrink by 6.5%, it's set to post a similar result.

With this information, it's not too hard to see why ZIM Integrated Shipping Services is trading at a fairly similar P/S in comparison. Nonetheless, with revenue going in reverse, it's not guaranteed that the P/S has found a floor yet. Maintaining these prices will be difficult to achieve as the weak outlook is likely to weigh down the shares eventually.

The Final Word

Its shares have lifted substantially and now ZIM Integrated Shipping Services' P/S is back within range of 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 ZIM Integrated Shipping Services' analyst forecasts revealed that its equally shaky outlook against the industry is keeping its P/S in line with the industry too. Right now, shareholders are comfortable with the P/S as they have faith that future revenue will not uncover any unpleasant surprises. Although, we are somewhat concerned whether the company can maintain this level of performance under these tough industry conditions. In the meantime, unless the company's prospects change they will continue to support the share price at these levels.

You need to take note of risks, for example - ZIM Integrated Shipping Services has 2 warning signs (and 1 which is concerning) we think 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.