Elecster Oyj's (HEL:ELEAV) 28% Price Boost Is Out Of Tune With Revenues

Elecster Oyj (HEL:ELEAV) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Elecster Oyj's P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in Finland is about the same. 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.

Check out our latest analysis for Elecster Oyj

How Elecster Oyj Has Been Performing

For example, consider that Elecster Oyj's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Elecster Oyj's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Elecster Oyj?

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

Retrospectively, the last year delivered a frustrating 20% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 7.0% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 1.7% shows it's an unpleasant look.

With this in mind, we find it worrying that Elecster Oyj's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Final Word

Elecster Oyj's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We find it unexpected that Elecster Oyj trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Elecster Oyj (2 are concerning) you should be aware of.

If you're unsure about the strength of Elecster Oyj's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.