Lacklustre Performance Is Driving Nafpaktos Textile Industry S.A.'s (ATH:NAYP) Low P/S
You may think that with a price-to-sales (or "P/S") ratio of 1.2x Nafpaktos Textile Industry S.A. (ATH:NAYP) is a stock worth checking out, seeing as almost half of all the Luxury companies in Greece have P/S ratios greater than 3x and even P/S higher than 10x 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.
View our latest analysis for Nafpaktos Textile Industry
What Does Nafpaktos Textile Industry's P/S Mean For Shareholders?
Revenue has risen firmly for Nafpaktos Textile Industry recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.
Although there are no analyst estimates available for Nafpaktos Textile Industry, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.How Is Nafpaktos Textile Industry's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as Nafpaktos Textile Industry's is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 11%. However, this wasn't enough as the latest three year period has seen an unpleasant 8.9% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
In contrast to the company, the rest of the industry is expected to grow by 2.4% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
With this information, we are not surprised that Nafpaktos Textile Industry is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Bottom Line On Nafpaktos Textile Industry's P/S
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.
Our examination of Nafpaktos Textile Industry confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
Before you take the next step, you should know about the 3 warning signs for Nafpaktos Textile Industry (2 are a bit unpleasant!) that we have uncovered.
If you're unsure about the strength of Nafpaktos Textile Industry's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.