Investors Appear Satisfied With Windward Ltd.'s (LON:WNWD) Prospects As Shares Rocket 72%

Windward Ltd. (LON:WNWD) shares have had a really impressive month, gaining 72% after a shaky period beforehand. The annual gain comes to 149% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in the United Kingdom's Software industry have price-to-sales ratios (or "P/S") below 2.3x, you may consider Windward as a stock to avoid entirely with its 7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Windward

How Has Windward Performed Recently?

Recent times have been advantageous for Windward as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Windward's Revenue Growth Trending?

In order to justify its P/S ratio, Windward would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 40%. The strong recent performance means it was also able to grow revenue by 112% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 19% during the coming year according to the three analysts following the company. With the industry only predicted to deliver 8.7%, the company is positioned for a stronger revenue result.

With this information, we can see why Windward is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has lead to Windward's P/S soaring as well. 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.

We've established that Windward maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Windward (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Windward, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.