Carclo plc (LON:CAR) Stock Rockets 26% But Many Are Still Ignoring The Company

Carclo plc (LON:CAR) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last month tops off a massive increase of 119% in the last year.

Although its price has surged higher, when close to half the companies operating in the United Kingdom's Chemicals industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider Carclo as an enticing stock to check out with its 0.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Our free stock report includes 3 warning signs investors should be aware of before investing in Carclo. Read for free now.

See our latest analysis for Carclo

What Does Carclo's P/S Mean For Shareholders?

Recent times haven't been great for Carclo as its revenue has been falling quicker than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Carclo?

In order to justify its P/S ratio, Carclo would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.3%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 9.0% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 9.9% during the coming year according to the only analyst following the company. Meanwhile, the broader industry is forecast to contract by 15%, which would indicate the company is doing very well.

With this information, we find it very odd that Carclo is trading at a P/S lower than the industry. It looks like most investors aren't convinced at all that the company can achieve positive future growth in the face of a shrinking broader industry.

The Bottom Line On Carclo's P/S

Carclo's stock price has surged recently, but its but its P/S still remains modest. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Carclo's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't contributing to its P/S anywhere near as much as we would have predicted. We believe there could be some underlying risks that are keeping the P/S modest in the context of above-average revenue growth. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. It appears many are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Carclo (1 is a bit concerning!) that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.