Yahoo Finance Investors Give Cherry SE (ETR:C3RY) Shares A 34% Hiding
Unfortunately for some shareholders, the Cherry SE (ETR:C3RY) share price has dived 34% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 57% share price decline.
In spite of the heavy fall in price, it's still not a stretch to say that Cherry's price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Tech industry in Germany, where the median P/S ratio is around 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
See our latest analysis for Cherry
How Cherry Has Been Performing
Recent times haven't been great for Cherry as its revenue has been falling quicker than most other companies. One possibility is that the P/S is moderate because investors think the company's revenue trend will eventually fall in line with most others in the industry. 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.
Keen to find out how analysts think Cherry's future stacks up against the industry? In that case, our free report is a great place to start.
What Are Revenue Growth Metrics Telling Us About The P/S?
In order to justify its P/S ratio, Cherry would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered a frustrating 14% decrease to the company's top line. Still, the latest three year period has seen an excellent 240% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 14% each year over the next three years. With the industry only predicted to deliver 4.9% per annum, the company is positioned for a stronger revenue result.
In light of this, it's curious that Cherry's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Bottom Line On Cherry's P/S
Cherry's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Despite enticing revenue growth figures that outpace the industry, Cherry's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.
Having said that, be aware Cherry is showing 2 warning signs in our investment analysis, and 1 of those is significant.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
