Investors Give Surface Transforms Plc (LON:SCE) Shares A 31% Hiding

The Surface Transforms Plc (LON:SCE) share price has softened a substantial 31% over the previous 30 days, handing back much of the gains the stock has made lately. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 97% loss during that time.

Even after such a large drop in price, there still wouldn't be many who think Surface Transforms' price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in the United Kingdom's Auto Components industry is similar at about 0.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Surface Transforms

How Surface Transforms Has Been Performing

Surface Transforms certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is Surface Transforms' Revenue Growth Trending?

Surface Transforms' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 119% gain to the company's top line. Pleasingly, revenue has also lifted 300% in aggregate from three years ago, thanks to the last 12 months of growth. 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 one analyst watching the company. That's shaping up to be materially higher than the 0.8% growth forecast for the broader industry.

In light of this, it's curious that Surface Transforms' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

With its share price dropping off a cliff, the P/S for Surface Transforms looks to be in line with the rest of the Auto Components industry. 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.

Looking at Surface Transforms' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Surface Transforms (at least 4 which are a bit unpleasant), and understanding these should be part of your investment process.

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.