There wouldn’t be many who think Evonik Industries AG’s (ETR:EVK) price-to-sales (or “P/S”) ratio of 0.5x is worth a mention when the median P/S for the Chemicals industry in Germany is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for Evonik Industries
What Does Evonik Industries’ P/S Mean For Shareholders?
With revenue that’s retreating more than the industry’s average of late, Evonik Industries has been very sluggish. Perhaps the market is expecting future revenue performance to begin matching the rest of the industry, which has kept the P/S from declining. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. If not, then existing shareholders may be a little nervous about the viability of the share price.
If you’d like to see what analysts are forecasting going forward, you should check out our free report on Evonik Industries.
How Is Evonik Industries’ Revenue Growth Trending?
Evonik Industries’ 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.
Taking a look back first, the company’s revenue growth last year wasn’t something to get excited about as it posted a disappointing decline of 12%. Even so, admirably revenue has lifted 30% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.
Turning to the outlook, the next three years should generate growth of 2.4% each year as estimated by the analysts watching the company. That’s shaping up to be similar to the 2.5% per annum growth forecast for the broader industry.
With this in mind, it makes sense that Evonik Industries’ P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.
The Final Word
It’s argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our look at Evonik Industries’ revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn’t great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.
We don’t want to rain on the parade too much, but we did also find 1 warning sign for Evonik Industries that you need to be mindful of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Valuation is complex, but we’re helping make it simple.
Find out whether Evonik Industries 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.
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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.
