PGE Polska Grupa Energetyczna S.A. (WSE:PGE) May Have Run Too Fast Too Soon With Recent 25% Price Plummet

The PGE Polska Grupa Energetyczna S.A. (WSE:PGE) share price has fared very poorly over the last month, falling by a substantial 25%. Looking at the bigger picture, even after this poor month the stock is up 37% in the last year.

Even after such a large drop in price, it's still not a stretch to say that PGE Polska Grupa Energetyczna's price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Electric Utilities industry in Poland, where the median P/S ratio is around 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for PGE Polska Grupa Energetyczna

What Does PGE Polska Grupa Energetyczna's P/S Mean For Shareholders?

With revenue that's retreating more than the industry's average of late, PGE Polska Grupa Energetyczna 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. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

Keen to find out how analysts think PGE Polska Grupa Energetyczna's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For PGE Polska Grupa Energetyczna?

The only time you'd be comfortable seeing a P/S like PGE Polska Grupa Energetyczna's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 13% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 0.7% per annum as estimated by the six analysts watching the company. Meanwhile, the broader industry is forecast to expand by 3.9% each year, which paints a poor picture.

With this information, we find it concerning that PGE Polska Grupa Energetyczna is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What We Can Learn From PGE Polska Grupa Energetyczna's P/S?

With its share price dropping off a cliff, the P/S for PGE Polska Grupa Energetyczna looks to be in line with the rest of the Electric Utilities industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It appears that PGE Polska Grupa Energetyczna currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for PGE Polska Grupa Energetyczna with six simple checks on some of these key factors.

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.