Why Investors Shouldn't Be Surprised By SSH Communications Security Oyj's (HEL:SSH1V) 28% Share Price Surge

SSH Communications Security Oyj (HEL:SSH1V) shares have continued their recent momentum with a 28% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

Since its price has surged higher, when almost half of the companies in Finland's Software industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider SSH Communications Security Oyj as a stock probably not worth researching with its 3.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for SSH Communications Security Oyj

How Has SSH Communications Security Oyj Performed Recently?

With revenue growth that's inferior to most other companies of late, SSH Communications Security Oyj has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is SSH Communications Security Oyj's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 6.5% gain to the company's revenues. The latest three year period has also seen an excellent 67% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 21% per annum as estimated by the lone analyst watching the company. With the industry only predicted to deliver 14% per year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that SSH Communications Security Oyj's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

SSH Communications Security Oyj shares have taken a big step in a northerly direction, but its P/S is elevated as a result. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of SSH Communications Security Oyj'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 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 and we've discovered 3 warning signs for SSH Communications Security Oyj (1 can't be ignored!) that you should be aware of before investing here.

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.