Skandia GreenPower AS (OB:SKAND) Soars 47% But It's A Story Of Risk Vs Reward

The Skandia GreenPower AS (OB:SKAND) share price has done very well over the last month, posting an excellent gain of 47%. The annual gain comes to 103% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, it would still be understandable if you think Skandia GreenPower is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.2x, considering almost half the companies in Norway's Electric Utilities industry have P/S ratios above 0.9x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Skandia GreenPower

What Does Skandia GreenPower's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Skandia GreenPower over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Skandia GreenPower will help you shine a light on its historical performance.

How Is Skandia GreenPower's Revenue Growth Trending?

In order to justify its P/S ratio, Skandia GreenPower would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 55% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 149% in total over the last three years. 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.

Comparing that to the industry, which is only predicted to deliver 5.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Skandia GreenPower's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Skandia GreenPower's P/S?

The latest share price surge wasn't enough to lift Skandia GreenPower's P/S close to the industry median. 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're very surprised to see Skandia GreenPower currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You always need to take note of risks, for example - Skandia GreenPower has 4 warning signs we think you should be aware of.

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