A Piece Of The Puzzle Missing From Flowtech Fluidpower plc's (LON:FLO) 28% Share Price Climb

Flowtech Fluidpower plc (LON:FLO) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 35% in the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that Flowtech Fluidpower's price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Trade Distributors industry in the United Kingdom, where the median P/S ratio is around 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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How Flowtech Fluidpower Has Been Performing

Flowtech Fluidpower could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

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Is There Some Revenue Growth Forecasted For Flowtech Fluidpower?

Flowtech Fluidpower's 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.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 2.5% overall from three years ago. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.4%, which is noticeably less attractive.

With this information, we find it interesting that Flowtech Fluidpower 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 Does Flowtech Fluidpower's P/S Mean For Investors?

Its shares have lifted substantially and now Flowtech Fluidpower's P/S is back within range of the industry median. 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, Flowtech Fluidpower's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

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Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.