Revenues Tell The Story For Filtronic plc (LON:FTC) As Its Stock Soars 32%

Filtronic plc (LON:FTC) shares have continued their recent momentum with a 32% gain in the last month alone. The last 30 days were the cherry on top of the stock's 317% gain in the last year, which is nothing short of spectacular.

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 1x, you may consider Filtronic as a stock to avoid entirely with its 6.5x 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

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

Recent times have been more advantageous for Filtronic as its revenue hasn't fallen as much as the rest of the industry. Perhaps the market is expecting the company to continue to outperform the industry, which has propped up the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price, especially if revenue continues to dissolve.

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

Is There Enough Revenue Growth Forecasted For Filtronic?

Filtronic's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 5.9% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 2.5% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 65% over the next year. That's shaping up to be materially higher than the 6.3% growth forecast for the broader industry.

In light of this, it's understandable that Filtronic's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has lead to Filtronic's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a 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. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You need to take note of risks, for example - Filtronic has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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.