Yahoo Finance Revenues Working Against OTRS AG's (FRA:TR9) Share Price
You may think that with a price-to-sales (or "P/S") ratio of 0.9x OTRS AG (FRA:TR9) is a stock worth checking out, seeing as almost half of all the Software companies in Germany have P/S ratios greater than 2x and even P/S higher than 5x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
Check out our latest analysis for OTRS
How Has OTRS Performed Recently?
With revenue growth that's inferior to most other companies of late, OTRS has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on OTRS will help you uncover what's on the horizon.
How Is OTRS' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as OTRS' is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 5.6%. Revenue has also lifted 19% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 5.0% per year as estimated by the lone analyst watching the company. With the industry predicted to deliver 7.9% growth per annum, the company is positioned for a weaker revenue result.
With this information, we can see why OTRS 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.
The Bottom Line On OTRS' P/S
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.
As we suspected, our examination of OTRS' analyst forecasts revealed that its inferior revenue outlook is contributing 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. The company will need a change of fortune to justify the P/S rising higher in the future.
You always need to take note of risks, for example - OTRS has 2 warning signs we think you should be aware of.
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.
