Icelandair Group hf.'s (ICE:ICEAIR) Shares Leap 28% Yet They're Still Not Telling The Full Story

Icelandair Group hf. (ICE:ICEAIR) shares have continued their recent momentum with a 28% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 15% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Icelandair Group hf's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Iceland's Airlines industry is similar at about 0.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Icelandair Group hf

How Icelandair Group hf Has Been Performing

Revenue has risen firmly for Icelandair Group hf recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on Icelandair Group hf will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Icelandair Group hf's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Icelandair Group hf?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Icelandair Group hf's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 8.5%. The latest three year period has seen an incredible overall rise in revenue, even though the last 12 month performance was only fair. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 6.9% shows it's noticeably more attractive.

In light of this, it's curious that Icelandair Group hf's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does Icelandair Group hf's P/S Mean For Investors?

Its shares have lifted substantially and now Icelandair Group hf's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Icelandair Group hf currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Icelandair Group hf, and understanding should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.