CyanConnode Holdings plc (LON:CYAN) Soars 39% But It's A Story Of Risk Vs Reward

The CyanConnode Holdings plc (LON:CYAN) share price has done very well over the last month, posting an excellent gain of 39%. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 3.6% over the last year.

Even after such a large jump in price, there still wouldn't be many who think CyanConnode Holdings' price-to-sales (or "P/S") ratio of 2x is worth a mention when the median P/S in the United Kingdom's Semiconductor industry is similar at about 2.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for CyanConnode Holdings

How CyanConnode Holdings Has Been Performing

Recent times have been pleasing for CyanConnode Holdings as its revenue has risen in spite of the industry's average revenue going into reverse. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. Those who are bullish on CyanConnode Holdings will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

Keen to find out how analysts think CyanConnode Holdings' 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 CyanConnode Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 60%. Pleasingly, revenue has also lifted 191% 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.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 79% over the next year. With the industry only predicted to deliver 58%, the company is positioned for a stronger revenue result.

In light of this, it's curious that CyanConnode Holdings' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

CyanConnode Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Despite enticing revenue growth figures that outpace the industry, CyanConnode Holdings' 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. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with CyanConnode Holdings, and understanding them should be part of your investment process.

If you're unsure about the strength of CyanConnode Holdings' 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.