AHT Syngas Technology NV (FRA:3SQ1) shares surge 33%, but lag behind industry in growth or price

O AHT Technology Syngas NV (FRA:3SQ1) share price has performed very poorly over the past month, falling by a substantial 33%. For any long-term shareholder, the past month caps off a year to forget by marking a 55% decline in the share price.

Despite the sharp drop in price, given that around half of the companies in Germany’s construction industry have price-to-sales (or “P/S”) ratios below 0.1x, you can still consider AHT Syngas Technology as a stock to avoid altogether with its P/S ratio of 2.5x. Although it would be unwise to just take the P/S at face value, as there could be an explanation for why it is so high.

Check out our latest analysis for AHT Syngas Technology

How has AHT Syngas Technology performed recently?

AHT Syngas Technology has certainly been doing well lately, as it has been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has driven the P/S higher. However, if that is not the case, investors could be caught paying too much for the stock.

Want the full picture of analyst estimates for the company? Then our free The AHT Syngas Technology Report will help you discover what’s coming next.

What is the revenue growth trend of AHT Syngas Technology?

There is an inherent assumption that a company must significantly outperform its industry for P/S ratios like AHT Syngas Technology’s to be considered reasonable.

Looking back first, we see that the company’s revenues have experienced runaway growth over the past 12 months. Spectacularly, the three-year revenue growth has also set the world on fire, thanks to the past 12 months of incredible growth. Consequently, shareholders would have been over the moon with these medium-term revenue growth rates.

Moving into the future, estimates from one analyst covering the company suggest that revenue is expected to grow 44% annually over the next three years. Meanwhile, the rest of the industry is forecast to expand just 8.0% annually, which is notably less appealing.

With this information, we can see why AHT Syngas Technology is trading at such a high P/S compared to the industry. It seems that most investors are expecting this strong future growth and are willing to pay more for the stock.

The final word

Even after such a sharp price drop, AHT Syngas Technology’s P/S still significantly exceeds the industry median. We would argue that the power of the price-to-sales ratio is not primarily as a valuation tool, but rather to gauge current investor sentiment and future expectations.

We have established that AHT Syngas Technology maintains its high P/S based on the strength of its forecasted revenue growth being higher than the rest of the construction industry, as expected. At the moment, shareholders are comfortable with the P/S as they are quite confident that future revenues are not under threat. Unless these conditions change, they will continue to provide strong support to the stock price.

We don’t want to spoil it, but we also found 2 Warning Signs for AHT Syngas Technology (1 is a bit worrying!) that you need to keep in mind.

Clear, profitable companies with a history of strong earnings growth are generally safer bets. Then you might want to see this free set of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your objectives or financial situation. Our aim is to bring you long-term focused analysis, driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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