Vestas Wind Systems A/S' (CPH:VWS) 25% Jump Shows Its Popularity With Investors

Vestas Wind Systems A/S (CPH:VWS) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 48% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Vestas Wind Systems' P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Electrical industry in Denmark is about the same. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Vestas Wind Systems

How Vestas Wind Systems Has Been Performing

Vestas Wind Systems certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. 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 Vestas Wind Systems?

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

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. The strong recent performance means it was also able to grow revenue by 31% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 7.8% each year over the next three years. With the industry predicted to deliver 8.4% growth each year, the company is positioned for a comparable revenue result.

In light of this, it's understandable that Vestas Wind Systems' P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Vestas Wind Systems' 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.

A Vestas Wind Systems' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Electrical industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

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

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.