Investors Appear Satisfied With Filtronic plc's (LON:FTC) Prospects As Shares Rocket 33%

Filtronic plc (LON:FTC) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. This latest share price bounce rounds out a remarkable 376% gain over the last twelve months.

After such a large jump 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 6.7x 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.

See our latest analysis for Filtronic

How Has Filtronic Performed Recently?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Filtronic has been doing quite well of late. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 56% gain to the company's top line. Pleasingly, revenue has also lifted 63% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 49% during the coming year according to the dual analysts following the company. With the industry only predicted to deliver 9.1%, 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. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Filtronic's P/S Mean For Investors?

The strong share price surge has lead to Filtronic's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Filtronic's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

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

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.