Kempower Oyj's (HEL:KEMPOWR) Stock Retreats 26% But Revenues Haven't Escaped The Attention Of Investors

Kempower Oyj (HEL:KEMPOWR) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 14% in that time.

In spite of the heavy fall in price, given around half the companies in Finland's Electrical industry have price-to-sales ratios (or "P/S") below 1.2x, you may still consider Kempower Oyj as a stock to avoid entirely with its 4.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Kempower Oyj

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

Recent times have been advantageous for Kempower Oyj as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might 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 Kempower Oyj.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Kempower Oyj would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 174% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 34% per annum over the next three years. That's shaping up to be materially higher than the 11% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Kempower Oyj's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Kempower Oyj's P/S Mean For Investors?

A significant share price dive has done very little to deflate Kempower Oyj's very lofty P/S. 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.

We've established that Kempower Oyj maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electrical industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Kempower 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.