Optimistic Investors Push Quartix Technologies plc (LON:QTX) Shares Up 29% But Growth Is Lacking

Quartix Technologies plc (LON:QTX) shareholders have had their patience rewarded with a 29% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 16% over that time.

Since its price has surged higher, when almost half of the companies in the United Kingdom's Software industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Quartix Technologies as a stock probably not worth researching with its 3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Quartix Technologies

How Quartix Technologies Has Been Performing

With revenue growth that's inferior to most other companies of late, Quartix Technologies has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Quartix Technologies' Revenue Growth Trending?

In order to justify its P/S ratio, Quartix Technologies would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 8.9%. Revenue has also lifted 24% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 8.4% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 12%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Quartix Technologies' P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Quartix Technologies' P/S

Quartix Technologies' P/S is on the rise since its shares have risen strongly. 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.

We've concluded that Quartix Technologies currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Quartix Technologies that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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