April 13, 2024
Investors

Why Investors Shouldn’t Be Surprised By Alstom SA’s (EPA:ALO) Low P/S


Alstom SA’s (EPA:ALO) price-to-sales (or “P/S”) ratio of 0.3x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Machinery industry in France have P/S ratios greater than 0.8x. Although, it’s not wise to just take the P/S at face value as there may be an explanation why it’s limited.

See our latest analysis for Alstom

ENXTPA:ALO Price to Sales Ratio vs Industry January 9th 2024

How Has Alstom Performed Recently?

With revenue growth that’s inferior to most other companies of late, Alstom has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you’d be hoping revenue doesn’t get any worse and that you could 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 Alstom.

How Is Alstom’s Revenue Growth Trending?

In order to justify its P/S ratio, Alstom would need to produce sluggish growth that’s trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.1%. The latest three year period has also seen an excellent 123% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it’s fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 5.2% each year during the coming three years according to the analysts following the company. With the industry predicted to deliver 11% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why Alstom 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 We Can Learn From Alstom’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.

As expected, our analysis of Alstom’s analyst forecasts confirms that the company’s underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won’t provide any pleasant surprises. It’s hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we’ve spotted 3 warning signs for Alstom (of which 1 makes us a bit uncomfortable!) you should know about.

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).

Valuation is complex, but we’re helping make it simple.

Find out whether Alstom is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *