Atrem S.A. (WSE:ATR) Stocks Shoot Up 30% But Its P/S Still Looks Reasonable

Despite an already strong run, Atrem S.A. (WSE:ATR) shares have been powering on, with a gain of 30% in the last thirty days. The annual gain comes to 206% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, you could be forgiven for thinking Atrem is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.1x, considering almost half the companies in Poland's Construction industry have P/S ratios below 0.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Atrem

How Has Atrem Performed Recently?

With revenue growth that's superior to most other companies of late, Atrem 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.

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

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

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

Taking a look back first, we see that the company grew revenue by an impressive 49% last year. Pleasingly, revenue has also lifted 66% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 13% per year during the coming three years according to the sole analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 6.0% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Atrem'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.

The Final Word

Atrem's P/S is on the rise since its shares have risen strongly. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Atrem maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Construction industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Atrem is showing 3 warning signs in our investment analysis, you should know about.

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