Why We're Not Concerned Yet About HydrogenPro ASA's (OB:HYPRO) 29% Share Price Plunge

HydrogenPro ASA (OB:HYPRO) shares have had a horrible month, losing 29% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 47% share price drop.

Even after such a large drop in price, you could still be forgiven for thinking HydrogenPro is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.8x, considering almost half the companies in Norway's Machinery industry have P/S ratios below 0.8x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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See our latest analysis for HydrogenPro

What Does HydrogenPro's Recent Performance Look Like?

HydrogenPro hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For HydrogenPro?

In order to justify its P/S ratio, HydrogenPro would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 45% decrease to the company's top line. Even so, admirably revenue has lifted 232% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 909% as estimated by the sole analyst watching the company. With the industry only predicted to deliver 16%, the company is positioned for a stronger revenue result.

With this information, we can see why HydrogenPro 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.

The Key Takeaway

Despite the recent share price weakness, HydrogenPro's P/S remains higher than most other companies in the industry. 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.

As we suspected, our examination of HydrogenPro's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. 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 - HydrogenPro has 4 warning signs (and 2 which are a bit concerning) we think you should know about.

If these risks are making you reconsider your opinion on HydrogenPro, 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.