A Piece Of The Puzzle Missing From Petards Group plc's (LON:PEG) 40% Share Price Climb

Petards Group plc (LON:PEG) shares have continued their recent momentum with a 40% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 75% in the last year.

In spite of the firm bounce in price, Petards Group's price-to-sales (or "P/S") ratio of 0.7x might still make it look like a buy right now compared to the Software industry in the United Kingdom, where around half of the companies have P/S ratios above 2.1x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Petards Group

How Petards Group Has Been Performing

Petards Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Petards Group.

How Is Petards Group's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Petards Group's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. As a result, revenue from three years ago have also fallen 28% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 38% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 12%, which is noticeably less attractive.

In light of this, it's peculiar that Petards Group's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Petards Group's P/S

The latest share price surge wasn't enough to lift Petards Group's P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Petards Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you settle on your opinion, we've discovered 3 warning signs for Petards Group (2 don't sit too well with us!) that you should be aware of.

If you're unsure about the strength of Petards Group's 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.