Further Upside For Surface Transforms Plc (LON:SCE) Shares Could Introduce Price Risks After 48% Bounce

Surface Transforms Plc (LON:SCE) shares have had a really impressive month, gaining 48% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 96% share price drop in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Surface Transforms' price-to-sales (or "P/S") ratio of 0.7x is worth a mention when it essentially matches the median P/S in the United Kingdom's Auto Components industry. 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.

Check out our latest analysis for Surface Transforms

How Surface Transforms Has Been Performing

Recent times have been advantageous for Surface Transforms as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 119% last year. The latest three year period has also seen an excellent 300% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 146% as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 1.4% growth forecast for the broader industry.

With this information, we find it interesting that Surface Transforms is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Surface Transforms' P/S?

Surface Transforms appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Despite enticing revenue growth figures that outpace the industry, Surface Transforms' P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Surface Transforms (of which 4 make us uncomfortable!) you should know about.

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

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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.