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The share price of Westag AG (FRA:WUG) is not in line with sales

It is no exaggeration to say that The (FRA:WUG) price-to-sales (or “P/S”) ratio of 0.6x seems fairly “average” for construction companies in Germany, as it is in line with the P/S ratio of the entire industry. However, investors might miss a clear opportunity or a potential pullback if there is no rational basis for the P/S.

Check out our latest analysis for Westag

DB:WUG Price-to-Sales Ratio compared to the Industry, June 27, 2024

How has Westag developed recently?

For example, consider that Westag’s financial performance has been poor recently as sales have been declining. Perhaps investors believe that recent sales performance is enough to keep pace with the industry, preventing a decline in P/S. If you like the company, you at least hope that’s the case so you can potentially buy some shares while it’s not exactly in demand.

Although there are no analyst estimates for Westag, take a look at these free Data-rich visualization to see how the company is performing in terms of profit, revenue and cash flow.

Is sales growth forecast for Westag?

Westag’s price-to-sales ratio would be typical of a company that is expected to deliver only moderate growth and, importantly, perform in line with the industry.

When we reviewed last year’s financials, we were disheartened to see that the company’s revenues fell by 9.6%. As a result, the total revenues from three years ago also fell by 6.6%. So, we must sadly admit that the company has not achieved much revenue growth during that time.

If one compares this with the industry trend, which is forecast to grow by 2.5 percent over the next twelve months, the company’s downward momentum based on the latest medium-term sales figures paints a sobering picture.

Given this information, we find it concerning that Westag trades at a fairly similar price-to-earnings ratio compared to the industry. It seems that most investors are ignoring the recent weak growth rate and hoping for a turnaround in the company’s business prospects. Only the bravest would assume that these prices are sustainable, as a continuation of recent sales trends will likely weigh on the share price eventually.

What can we learn from Westag’s P/S?

Although the price-to-sales ratio should not be the deciding factor in whether or not you buy a stock, it is a useful indicator of sales expectations.

The fact that Westag is currently trading at a price-to-earnings ratio in line with the rest of the industry surprises us, as the company’s sales have been declining recently over the medium term, while the industry is geared towards growth. When we see a decline in sales in the context of rising industry forecasts, it stands to reason that a potential decline in the share price is on the horizon, driving the modest price-to-earnings ratio lower. If recent medium-term sales trends continue, shareholders’ investments are at risk and potential investors risk paying an unnecessary premium.

One must always be aware of the ever-present risk of an investment. We have identified 3 warning signs at Westag (at least 1, which is important) and understanding these should be part of your investment process.

If you like strong, profitable companies, then you should check this out free List of interesting companies that trade at a low P/E ratio (but have proven that they can grow their earnings).

Valuation is complex, but we help simplify it.

Find out if Westag may be overvalued or undervalued by reading our comprehensive analysis which includes: Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

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This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

Valuation is complex, but we help simplify it.

Find out if Westag may be overvalued or undervalued by reading our comprehensive analysis which includes: Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

Do you have feedback on this article? Are you interested in the content? Contact us directly. Alternatively, send an email to [email protected]

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