Bittium Oyj's (HEL:BITTI) 26% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, Bittium Oyj (HEL:BITTI) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 111% in the last year.

Since its price has surged higher, you could be forgiven for thinking Bittium Oyj is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.1x, considering almost half the companies in Finland's Software industry have P/S ratios below 1.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Bittium Oyj

How Has Bittium Oyj Performed Recently?

While the industry has experienced revenue growth lately, Bittium Oyj's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

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 9.0%. This means it has also seen a slide in revenue over the longer-term as revenue is down 4.1% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 15% per annum as estimated by the only analyst watching the company. That's shaping up to be similar to the 16% each year growth forecast for the broader industry.

In light of this, it's curious that Bittium Oyj's P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

Shares in Bittium Oyj have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Bittium Oyj currently trades on a higher than expected P/S. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. A positive change is needed in order to justify the current price-to-sales ratio.

Plus, you should also learn about this 1 warning sign we've spotted with Bittium Oyj.

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.

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