Zaklady Urzadzen Kotlowych "Staporków" S.A.'s (WSE:ZUK) 28% Price Boost Is Out Of Tune With Revenues

Zaklady Urzadzen Kotlowych "Staporków" S.A. (WSE:ZUK) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 74%.

In spite of the firm bounce in price, it's still not a stretch to say that Zaklady Urzadzen Kotlowych Staporków's price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Machinery industry in Poland, where the median P/S ratio is around 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Zaklady Urzadzen Kotlowych Staporków

How Zaklady Urzadzen Kotlowych Staporków Has Been Performing

With revenue growth that's exceedingly strong of late, Zaklady Urzadzen Kotlowych Staporków has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. 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 not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Zaklady Urzadzen Kotlowych Staporków's earnings, revenue and cash flow.

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

The only time you'd be comfortable seeing a P/S like Zaklady Urzadzen Kotlowych Staporków's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 35% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 17% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 34% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Zaklady Urzadzen Kotlowych Staporków's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Zaklady Urzadzen Kotlowych Staporków's P/S?

Zaklady Urzadzen Kotlowych Staporków appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

The fact that Zaklady Urzadzen Kotlowych Staporków currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 3 warning signs for Zaklady Urzadzen Kotlowych Staporków (2 can't be ignored!) that you should be aware of.

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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.