Revenues Not Telling The Story For Pressure Technologies plc (LON:PRES) After Shares Rise 31%

Pressure Technologies plc (LON:PRES) shares have had a really impressive month, gaining 31% after a shaky period beforehand. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, there still wouldn't be many who think Pressure Technologies' price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in the United Kingdom's Energy Services 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 Pressure Technologies

How Has Pressure Technologies Performed Recently?

Pressure Technologies certainly has been doing a good job lately as it's been growing revenue more 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 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.

Keen to find out how analysts think Pressure Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

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 Pressure Technologies' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 44% gain to the company's top line. Revenue has also lifted 5.4% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 12% as estimated by the two analysts watching the company. With the industry predicted to deliver 20% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Pressure Technologies is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

Its shares have lifted substantially and now Pressure Technologies' P/S is back within range of the industry median. 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.

When you consider that Pressure Technologies' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you settle on your opinion, we've discovered 4 warning signs for Pressure Technologies that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.