There's Reason For Concern Over Jastrzebska Spólka Weglowa S.A.'s (WSE:JSW) Massive 26% Price Jump

Jastrzebska Spólka Weglowa S.A. (WSE:JSW) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 37% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that Jastrzebska Spólka Weglowa's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Metals and Mining industry in Poland, where the median P/S ratio is around 0.4x. 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.

See our latest analysis for Jastrzebska Spólka Weglowa

How Has Jastrzebska Spólka Weglowa Performed Recently?

Recent times haven't been great for Jastrzebska Spólka Weglowa as its revenue has been falling quicker than most other companies. One possibility is that the P/S is moderate because investors think the company's revenue trend will eventually fall in line with most others in the industry. You'd much rather the company improve its revenue if you still believe in the business. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

Want the full picture on analyst estimates for the company? Then our free report on Jastrzebska Spólka Weglowa will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Jastrzebska Spólka Weglowa's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 28% decrease to the company's top line. Even so, admirably revenue has lifted 105% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to slump, contracting by 4.1% each year during the coming three years according to the seven analysts following the company. Meanwhile, the broader industry is forecast to expand by 4.4% each year, which paints a poor picture.

In light of this, it's somewhat alarming that Jastrzebska Spólka Weglowa's P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does Jastrzebska Spólka Weglowa's P/S Mean For Investors?

Jastrzebska Spólka Weglowa appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

It appears that Jastrzebska Spólka Weglowa currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Jastrzebska Spólka Weglowa with six simple checks on some of these key factors.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.