Market Participants Recognise Filtronic plc's (LON:FTC) Revenues Pushing Shares 32% Higher

Filtronic plc (LON:FTC) shareholders have had their patience rewarded with a 32% share price jump in the last month. This latest share price bounce rounds out a remarkable 330% gain over the last twelve months.

Since its price has surged higher, 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 7.8x 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.

See our latest analysis for Filtronic

What Does Filtronic's Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Filtronic has been doing quite well of late. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Filtronic?

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

If we review the last year of revenue growth, the company posted a terrific increase of 56%. Pleasingly, revenue has also lifted 63% 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 64% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 9.5%, which is noticeably less attractive.

With this information, we can see why Filtronic is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Filtronic's P/S?

The strong share price surge has lead to Filtronic's P/S soaring as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Filtronic maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Communications industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Filtronic.

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.