Market Cool On Elliptic Laboratories ASA's (OB:ELABS) Revenues Pushing Shares 30% Lower

To the annoyance of some shareholders, Elliptic Laboratories ASA (OB:ELABS) shares are down a considerable 30% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 33% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Elliptic Laboratories' price-to-sales (or "P/S") ratio of 5.1x is worth a mention when the median P/S in Norway's Software industry is similar at about 4.7x. 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.

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See our latest analysis for Elliptic Laboratories

How Elliptic Laboratories Has Been Performing

Elliptic Laboratories certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think Elliptic Laboratories' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Elliptic Laboratories' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 51%. Pleasingly, revenue has also lifted 83% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 56% over the next year. That's shaping up to be materially higher than the 9.6% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Elliptic Laboratories' P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Elliptic Laboratories' P/S?

Following Elliptic Laboratories' share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Despite enticing revenue growth figures that outpace the industry, Elliptic Laboratories' P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Elliptic Laboratories that you need to be mindful of.

If you're unsure about the strength of Elliptic Laboratories' 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.