ÜSTRA Hannoversche Verkehrsbetriebe Aktiengesellschaft's (FRA:HVB) Business Is Trailing The Industry But Its Shares Aren't
When close to half the companies in the Transportation industry in Germany have price-to-sales ratios (or "P/S") below 0.6x, you may consider ÜSTRA Hannoversche Verkehrsbetriebe Aktiengesellschaft (FRA:HVB) as a stock to potentially avoid with its 1.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
View our latest analysis for ÜSTRA Hannoversche Verkehrsbetriebe
What Does ÜSTRA Hannoversche Verkehrsbetriebe's P/S Mean For Shareholders?
ÜSTRA Hannoversche Verkehrsbetriebe has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on ÜSTRA Hannoversche Verkehrsbetriebe's earnings, revenue and cash flow.How Is ÜSTRA Hannoversche Verkehrsbetriebe's Revenue Growth Trending?
ÜSTRA Hannoversche Verkehrsbetriebe's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
Retrospectively, the last year delivered a decent 2.9% gain to the company's revenues. Still, lamentably revenue has fallen 2.3% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 0.5% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
With this in mind, we find it worrying that ÜSTRA Hannoversche Verkehrsbetriebe's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.
The Bottom Line On ÜSTRA Hannoversche Verkehrsbetriebe's P/S
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.
We've established that ÜSTRA Hannoversche Verkehrsbetriebe currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Before you settle on your opinion, we've discovered 3 warning signs for ÜSTRA Hannoversche Verkehrsbetriebe (2 are potentially serious!) 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).
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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.