Market Participants Recognise Napatech A/S' (OB:NAPA) Revenues Pushing Shares 30% Higher

Despite an already strong run, Napatech A/S (OB:NAPA) shares have been powering on, with a gain of 30% in the last thirty days. The last month tops off a massive increase of 133% in the last year.

Since its price has surged higher, when almost half of the companies in Norway's Communications industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider Napatech as a stock not worth researching with its 7.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Napatech

How Has Napatech Performed Recently?

Recent times have been pleasing for Napatech as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 15% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 6.0% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 38% per year over the next three years. That's shaping up to be materially higher than the 2.1% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Napatech's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Napatech's P/S Mean For Investors?

Napatech's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Napatech maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Communications industry, as expected. 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.

Having said that, be aware Napatech is showing 1 warning sign in our investment analysis, 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.