Filtronic plc (LON:FTC) Looks Just Right With A 27% Price Jump

Filtronic plc (LON:FTC) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The annual gain comes to 113% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given around half the companies in the United Kingdom's Communications industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider Filtronic as a stock to avoid entirely with its 6.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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See our latest analysis for Filtronic

How Filtronic Has Been Performing

Filtronic certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Filtronic's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Filtronic?

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

Taking a look back first, we see that the company grew revenue by an impressive 160% last year. Pleasingly, revenue has also lifted 159% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 23% during the coming year according to the two analysts following the company. With the industry only predicted to deliver 11%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Filtronic's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Filtronic's P/S

The strong share price surge has lead to Filtronic'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.

Our look into Filtronic shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Filtronic (of which 1 is concerning!) you should know about.

If these risks are making you reconsider your opinion on Filtronic, 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.