Smartoptics Group ASA's (OB:SMOP) P/S Is Still On The Mark Following 40% Share Price Bounce

Smartoptics Group ASA (OB:SMOP) shares have continued their recent momentum with a 40% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 70%.

After such a large jump in price, you could be forgiven for thinking Smartoptics Group is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.8x, considering almost half the companies in Norway's Communications industry have P/S ratios below 1.4x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Smartoptics Group

What Does Smartoptics Group's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Smartoptics Group has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is Smartoptics Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Smartoptics Group's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. The latest three year period has also seen a 18% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 22% over the next year. That's shaping up to be materially higher than the 2.2% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Smartoptics Group's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

The strong share price surge has lead to Smartoptics Group's P/S soaring as well. 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.

Our look into Smartoptics Group shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

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

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.