Investors Don't See Light At End Of Sensata Technologies Holding plc's (NYSE:ST) Tunnel

Sensata Technologies Holding NV -0.54% Post

Sensata Technologies Holding NV

ST

42.54

42.54

-0.54%

0.00% Post

You may think that with a price-to-sales (or "P/S") ratio of 1.4x Sensata Technologies Holding plc (NYSE:ST) is a stock worth checking out, seeing as almost half of all the Electrical companies in the United States have P/S ratios greater than 1.9x and even P/S higher than 5x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Sensata Technologies Holding

ps-multiple-vs-industry
NYSE:ST Price to Sales Ratio vs Industry March 30th 2024

What Does Sensata Technologies Holding's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Sensata Technologies Holding 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 Sensata Technologies Holding will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Sensata Technologies Holding would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 33% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Turning to the outlook, the next three years should generate growth of 5.1% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 37% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Sensata Technologies Holding's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Sensata Technologies Holding's P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of Sensata Technologies Holding's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Sensata Technologies Holding that 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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