Shareholders Should Be Pleased With Wärtsilä Oyj Abp's (HEL:WRT1V) Price

When you see that almost half of the companies in the Machinery industry in Finland have price-to-sales ratios (or "P/S") below 0.7x, Wärtsilä Oyj Abp (HEL:WRT1V) looks to be giving off some sell signals with its 1.3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Wärtsilä Oyj Abp

What Does Wärtsilä Oyj Abp's Recent Performance Look Like?

There hasn't been much to differentiate Wärtsilä Oyj Abp's and the industry's revenue growth lately. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Wärtsilä Oyj Abp's Revenue Growth Trending?

In order to justify its P/S ratio, Wärtsilä Oyj Abp would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 8.4%. Revenue has also lifted 21% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 6.0% per year over the next three years. With the industry only predicted to deliver 2.5% each year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Wärtsilä Oyj Abp's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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.

As we suspected, our examination of Wärtsilä Oyj Abp's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Wärtsilä Oyj Abp with six simple checks on some of these key factors.

If you're unsure about the strength of Wärtsilä Oyj Abp's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.