Why Investors Shouldn't Be Surprised By SRV Yhtiöt Oyj's (HEL:SRV1V) 35% Share Price Surge

SRV Yhtiöt Oyj (HEL:SRV1V) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 36% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think SRV Yhtiöt Oyj's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Finland's Construction industry is similar at about 0.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for SRV Yhtiöt Oyj

How SRV Yhtiöt Oyj Has Been Performing

SRV Yhtiöt Oyj hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on SRV Yhtiöt Oyj will help you uncover what's on the horizon.

How Is SRV Yhtiöt Oyj's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 21%. As a result, revenue from three years ago have also fallen 37% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 10% each year over the next three years. With the industry predicted to deliver 9.0% growth per annum, the company is positioned for a comparable revenue result.

With this in mind, it makes sense that SRV Yhtiöt Oyj's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Its shares have lifted substantially and now SRV Yhtiöt 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.

Our look at SRV Yhtiöt Oyj's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Plus, you should also learn about these 2 warning signs we've spotted with SRV Yhtiöt Oyj.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.