Investors Appear Satisfied With Electro Optic Systems Holdings Limited's (ASX:EOS) Prospects As Shares Rocket 28%

Electro Optic Systems Holdings Limited (ASX:EOS) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 15% in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Electro Optic Systems Holdings' P/S ratio of 1.5x, since the median price-to-sales (or "P/S") ratio for the Aerospace & Defense industry in Australia is also close to 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Electro Optic Systems Holdings

What Does Electro Optic Systems Holdings' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Electro Optic Systems Holdings' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Electro Optic Systems Holdings.

Is There Some Revenue Growth Forecasted For Electro Optic Systems Holdings?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Electro Optic Systems Holdings' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 19%. This means it has also seen a slide in revenue over the longer-term as revenue is down 17% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 11% per annum over the next three years. That's shaping up to be similar to the 11% per year growth forecast for the broader industry.

In light of this, it's understandable that Electro Optic Systems Holdings' P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Electro Optic Systems Holdings' P/S

Electro Optic Systems Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the 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.

A Electro Optic Systems Holdings' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Aerospace & Defense industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Having said that, be aware Electro Optic Systems Holdings is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Electro Optic Systems Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.