Witted Megacorp Oyj's (HEL:WITTED) Shares Leap 29% Yet They're Still Not Telling The Full Story

Witted Megacorp Oyj (HEL:WITTED) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 15% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Witted Megacorp Oyj's price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the IT industry in Finland, where the median P/S ratio is around 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Witted Megacorp Oyj

How Has Witted Megacorp Oyj Performed Recently?

While the industry has experienced revenue growth lately, Witted Megacorp Oyj's revenue has gone into reverse gear, which is not great. 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.

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

Is There Some Revenue Growth Forecasted For Witted Megacorp Oyj?

In order to justify its P/S ratio, Witted Megacorp Oyj would need to produce growth that's similar to 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 14%. Even so, admirably revenue has lifted 46% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should demonstrate some strength in company's business, generating growth of 1.4% as estimated by the only analyst watching the company. This isn't typically strong growth, but with the rest of the industry predicted to shrink by 24%, that would be a solid result.

Even though the growth is only slight, it's peculiar that Witted Megacorp Oyj's P/S sits in line with the majority of other companies given the industry is set for a decline. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

The Bottom Line On Witted Megacorp Oyj's P/S

Witted Megacorp Oyj's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We note that even though Witted Megacorp Oyj trades at a similar P/S as the rest of the industry, it far eclipses them in terms of forecasted revenue growth. Given the glowing revenue forecasts, we can only assume potential risks are what might be capping the P/S ratio at its current levels. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Witted Megacorp Oyj (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.

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.