Not Many Are Piling Into Surface Transforms Plc (LON:SCE) Stock Yet As It Plummets 37%

Unfortunately for some shareholders, the Surface Transforms Plc (LON:SCE) share price has dived 37% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 99% share price decline.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Surface Transforms' P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Auto Components industry in the United Kingdom is also close to 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Surface Transforms

What Does Surface Transforms' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Surface Transforms has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. 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.

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.

Is There Some Revenue Growth Forecasted For Surface Transforms?

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

If we review the last year of revenue growth, the company posted a terrific increase of 119%. Pleasingly, revenue has also lifted 300% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 146% during the coming year according to the one analyst following the company. That's shaping up to be materially higher than the 2.3% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Surface Transforms' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Surface Transforms' plummeting stock price has brought its P/S back to a similar region as the rest of 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.

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. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

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 don't sit too well with us), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Surface Transforms, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.