Swan Energy Limited's (NSE:SWANENERGY) 27% Jump Shows Its Popularity With Investors

Despite an already strong run, Swan Energy Limited (NSE:SWANENERGY) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 194% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking Swan Energy is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.3x, considering almost half the companies in India's Luxury industry have P/S ratios below 0.9x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Swan Energy

What Does Swan Energy's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Swan Energy has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Swan Energy's earnings, revenue and cash flow.

How Is Swan Energy's Revenue Growth Trending?

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

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 12% shows it's noticeably more attractive.

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

The Bottom Line On Swan Energy's P/S

The strong share price surge has lead to Swan Energy'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.

It's no surprise that Swan Energy can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Swan Energy is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Swan Energy's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.