Sirma Group Holding AD (BUL:SGH) Stock Rockets 36% But Many Are Still Ignoring The Company

Despite an already strong run, Sirma Group Holding AD (BUL:SGH) shares have been powering on, with a gain of 36% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 59% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Sirma Group Holding AD's P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the IT industry in Bulgaria is also close to 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Sirma Group Holding AD

What Does Sirma Group Holding AD's P/S Mean For Shareholders?

Revenue has risen firmly for Sirma Group Holding AD recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Sirma Group Holding AD will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Sirma Group Holding AD, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

Sirma Group Holding AD's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. Pleasingly, revenue has also lifted 64% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 2.4% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Sirma Group Holding AD's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Sirma Group Holding AD's P/S Mean For Investors?

Its shares have lifted substantially and now Sirma Group Holding AD's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To our surprise, Sirma Group Holding AD revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Sirma Group Holding AD (1 shouldn't be ignored!) that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.