SBF AG's (FRA:CY1K) 71% Share Price Surge Not Quite Adding Up

SBF AG (FRA:CY1K) shares have continued their recent momentum with a 71% gain in the last month alone. The annual gain comes to 150% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, it's still not a stretch to say that SBF's price-to-sales (or "P/S") ratio of 1.6x right now seems quite "middle-of-the-road" compared to the Electrical industry in Germany, seeing as it matches the P/S ratio of the wider industry. 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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View our latest analysis for SBF

What Does SBF's Recent Performance Look Like?

SBF certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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Is There Some Revenue Growth Forecasted For SBF?

In order to justify its P/S ratio, SBF would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 44% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 57% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 6.7% each year during the coming three years according to the dual analysts following the company. With the industry predicted to deliver 9.1% growth each year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that SBF's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From SBF's P/S?

Its shares have lifted substantially and now SBF's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Given that SBF's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

You should always think about risks. Case in point, we've spotted 2 warning signs for SBF you should be aware of, and 1 of them is potentially serious.

If you're unsure about the strength of SBF'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.