Protektor S.A. (WSE:PRT) Stock Rockets 54% As Investors Are Less Pessimistic Than Expected

Protektor S.A. (WSE:PRT) shareholders would be excited to see that the share price has had a great month, posting a 54% gain and recovering from prior weakness. Looking further back, the 18% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, there still wouldn't be many who think Protektor's price-to-sales (or "P/S") ratio of 0.6x is worth a mention when it essentially matches the median P/S in Poland's Luxury industry. 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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See our latest analysis for Protektor

How Protektor Has Been Performing

As an illustration, revenue has deteriorated at Protektor over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

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

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 17%. The last three years don't look nice either as the company has shrunk revenue by 16% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 2.9% 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 Protektor's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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.

The Bottom Line On Protektor's P/S

Its shares have lifted substantially and now Protektor's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We find it unexpected that Protektor trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Protektor (2 are a bit unpleasant) you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.