Even With A 28% Surge, Cautious Investors Are Not Rewarding Nokian Renkaat Oyj's (HEL:TYRES) Performance Completely

Nokian Renkaat Oyj (HEL:TYRES) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 2.4% in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Nokian Renkaat Oyj's P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the Auto Components industry in Finland is also close to 0.4x. 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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See our latest analysis for Nokian Renkaat Oyj

How Nokian Renkaat Oyj Has Been Performing

With revenue growth that's superior to most other companies of late, Nokian Renkaat Oyj has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think Nokian Renkaat Oyj's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Nokian Renkaat Oyj's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 11%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 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 nine analysts covering the company suggest revenue should grow by 9.1% per annum over the next three years. With the industry only predicted to deliver 2.5% per year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Nokian Renkaat Oyj's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Nokian Renkaat Oyj's P/S

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

We've established that Nokian Renkaat Oyj currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Before you settle on your opinion, we've discovered 2 warning signs for Nokian Renkaat Oyj that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.