A Piece Of The Puzzle Missing From Exel Composites Oyj's (HEL:EXL1V) 28% Share Price Climb

Those holding Exel Composites Oyj (HEL:EXL1V) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 89% share price decline over the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Exel Composites Oyj's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Finland's Machinery industry is similar at about 0.6x. 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.

See our latest analysis for Exel Composites Oyj

What Does Exel Composites Oyj's P/S Mean For Shareholders?

Exel Composites Oyj has been struggling lately as its revenue has declined faster than most other companies. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Exel Composites Oyj.

Is There Some Revenue Growth Forecasted For Exel Composites Oyj?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 22%. As a result, revenue from three years ago have also fallen 22% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 12% per annum over the next three years. That's shaping up to be materially higher than the 4.0% per annum growth forecast for the broader industry.

With this information, we find it interesting that Exel Composites Oyj is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Exel Composites Oyj's P/S

Its shares have lifted substantially and now Exel Composites Oyj'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.

Despite enticing revenue growth figures that outpace the industry, Exel Composites Oyj's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

It is also worth noting that we have found 3 warning signs for Exel Composites Oyj (2 don't sit too well with us!) that you need to take into consideration.

If you're unsure about the strength of Exel Composites Oyj'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.