Further Upside For CyanConnode Holdings plc (LON:CYAN) Shares Could Introduce Price Risks After 29% Bounce

Those holding CyanConnode Holdings plc (LON:CYAN) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about CyanConnode Holdings' P/S ratio of 2.2x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in the United Kingdom is also close to 1.7x. 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.

Check out our latest analysis for CyanConnode Holdings

What Does CyanConnode Holdings' P/S Mean For Shareholders?

CyanConnode Holdings certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on CyanConnode Holdings will help you uncover what's on the horizon.

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 worthy increase of 15%. This was backed up an excellent period prior to see revenue up by 106% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 99% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 56%, which is noticeably less attractive.

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

What We Can Learn From CyanConnode Holdings' P/S?

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.

Looking at CyanConnode Holdings' 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.

Before you settle on your opinion, we've discovered 3 warning signs for CyanConnode Holdings that you should be aware of.

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.