Quartix Technologies plc (LON:QTX) Stock Rockets 28% As Investors Are Less Pessimistic Than Expected

Quartix Technologies plc (LON:QTX) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 79% in the last year.

Following the firm bounce in price, given close to half the companies operating 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 to potentially avoid with its 3.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Quartix Technologies

What Does Quartix Technologies' P/S Mean For Shareholders?

Quartix Technologies' revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Quartix Technologies?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Quartix Technologies' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 8.4%. Revenue has also lifted 27% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 7.6% per year over the next three years. With the industry predicted to deliver 9.5% growth each year, the company is positioned for a comparable revenue result.

In light of this, it's curious that Quartix Technologies' P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What Does Quartix Technologies' P/S Mean For Investors?

The large bounce in Quartix Technologies' shares has lifted the company's P/S handsomely. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Analysts are forecasting Quartix Technologies' revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Quartix Technologies is showing 2 warning signs in our investment analysis, you should know about.

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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.