Why Investors Shouldn't Be Surprised By Lubawa S.A.'s (WSE:LBW) 28% Share Price Surge

Lubawa S.A. (WSE:LBW) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 180% in the last year.

Since its price has surged higher, when almost half of the companies in Poland's Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider Lubawa as a stock probably not worth researching with its 3x 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 as high as it is.

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See our latest analysis for Lubawa

How Has Lubawa Performed Recently?

Recent times have been quite advantageous for Lubawa as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Although there are no analyst estimates available for Lubawa, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Lubawa's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 93%. The strong recent performance means it was also able to grow revenue by 121% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 14% shows it's noticeably more attractive.

With this information, we can see why Lubawa is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

Lubawa shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Lubawa maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

You should always think about risks. Case in point, we've spotted 1 warning sign for Lubawa you should be aware of.

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.